Chink of light for retailers as sales stronger than expected in February despite ongoing uncertainty

27 March 2023
Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, comments on the February ONS retail sales data, which shows a strong increase in retail sales volumes of 1.2%.

‘With consumer confidence continuing to creep up from a September low, these figures reflect people coming out of the January hibernation. It was a strong month for department stores and clothing, up 5.5% and 2.9% respectively.

‘February’s figures show shoppers are still having to make stark choices in their spending habits as consumer confidence is well below normal levels and a lot of uncertainty remains. They are spending but consumers are making the choice to trade down to make their money go further, as shown by the strong sales at discount stores. Purchases are much more considered, with household goods bearing the brunt of this, down 0.3%, which is unsurprising given the weaker housing market.

‘As consumers modify their spending habits, so too are retailers having to adapt and consolidate their offerings and rationalise their product ranges which means less choice for consumers. This will be a hangover from the ongoing supply chain issues and the rising cost-of-living which have left many retailers overstocked from last year.

‘The ongoing industrial action will have undoubtedly harmed retailers, and the latest inflation figures and another interest rate rise will hit consumers’ spending capacity. There is, however, a light at the end of the tunnel, with longer term forecasts for the economy to be turning a corner and hopefully boost consumer confidence and their spending habits.

‘As retailers look forward on their sales calendar, consumers will be wanting to enjoy the longer days, with Easter and three bank holidays in May there’s a chink of light to boost sales.’

Thomas Pugh, economist at RSM UK, added: ‘Strong growth in retail sales in February, and the positive revision to January, paints a more resilient picture of the economy at the start of the year and probably reduces the chances of the economy slipping into recession.

‘Of course, increases in food sales could reflect consumers substituting spending in restaurants in favour of home cooking. So, it doesn’t necessarily point to stronger overall GDP growth. What’s more, we expect households’ total disposable incomes to continue to fall in Q1 and Q2 this year – meaning that spending is likely to be constrained in the first half of this year.

‘However, the strong growth in more discretionary categories such as department stores and clothing, combined with another uptick in consumer confidence, suggests that consumers are becoming more willing to go out and spend. Given households’ balance sheets are still generally strong, there is room for consumers to save less and borrow more to supplement spending. Indeed, the main factor that will determine if the UK falls into recession or avoids it will be the willingness of consumers to go out and spend.’