Comments on today’s ONS retail sales figures for July
“Retail sales volumes rose in July (by 0.3%) as consumers enjoyed the start of the summer and maintained spending ahead of an autumn of energy price rises and inflationary pressures.
“Despite the surprise rise in July, the overall picture is much gloomier. Retailers face challenging trading conditions with consumers expected to pare back spending as the rising cost-of-living affects confidence. This will especially affect the non-discretionary sector as consumers are already tightening their belts as they prepare for what they know is to come.
“The real impact of this slowdown is likely to be felt in the autumn just as many retailers prepare for the all-important ‘golden quarter’ in the lead up to Christmas. Retail, along with hospitality businesses, which are highly sensitive to fluctuations in consumer demand, will be most exposed.
“It will continue to be a really challenging balance for retailers to strike between managing cost increases and managing price increases. They need to keep an eye on driving revenue while not affecting profitability too much, as well as trying to capture demand that is still there while managing supply costs and inflation.
Passing on price increases
“Retailers are now facing tough decisions as to the extent they can pass on price increases in this environment. EY’s latest Future Consumer Index (FCI) found that consumers are taking decisive action when reacting to price rises on discretionary purchases – 49% are buying less clothing, shoes and accessories while 43% are purchasing less in the consumer electronics category and 14% have stopped purchasing altogether.
“It is vital that retailers review their customer base and look at what impact price rises could have. The FCI data identified a clear divergence in consumers’ fortunes – rather than converging towards the middle, consumer behaviour is drifting towards two extremes creating a ‘K-shaped’ consumer profile in which different groups experience different rates of recovery.
“Retailers can potentially mitigate the impact of price increases by thinking strategically, segmenting their market, and being smart about how and where they apply price increases. It’s clear that a ‘one-size fits all’ model will no longer work.”
Silvia Rindone, EY UK&I Retail Lead