Retailers face a ‘summer to forget’ as sales fall for fourth month in a row
UK retail sales fell for the fourth consecutive month in August, as supply chain disruptions, rising Covid cases and the end of the furlough scheme weighed on consumer spending. According to the latest data from the Office for National Statistics (ONS), retail sales volumes dropped by 0.9% last month, compared with July, and were 2.3% lower than in February 2020, before the pandemic hit. The decline was worse than expected by economists, who had forecast a 0.5% fall.
The ONS said that food stores, petrol stations and online retailers saw the biggest falls in sales, while clothing and footwear shops and department stores saw some growth. Food sales were down 1.2%, fuel sales were down 2.9% and online sales were down 2.5%, partly reflecting the impact of people returning to physical stores after lockdown restrictions eased. Clothing and footwear sales rose by 2.3%, while department store sales rose by 3.7%, boosted by back-to-school purchases.
The ONS also said that supply chain issues, such as the shortage of HGV drivers and the global microchip crisis, had affected some retailers’ ability to stock and sell goods. Some retailers reported that they had to limit or cancel orders due to delays or higher costs of imports, while others said that they had to increase prices or offer discounts to clear excess stock.
The British Retail Consortium (BRC), which represents more than 170 major retailers, said that August was a “summer to forget” for many retailers, who faced a “perfect storm” of challenges. Helen Dickinson, the chief executive of the BRC, said: “While August is usually a quieter month for retail, these figures are hugely disappointing and suggest that the post-lockdown bounce-back has come to an abrupt halt. Retailers are facing a multitude of challenges, from global supply chain disruption and staff shortages to increased cost pressures and dampened consumer confidence.”
Consumer confidence remains fragile amid rising inflation and Covid uncertainty
The fall in retail sales also reflects the fragility of consumer confidence, which has been hit by rising inflation, Covid uncertainty and the looming end of the furlough scheme. According to a survey by market research firm GfK, consumer confidence fell by two points to -8 in August, reversing some of the gains made earlier this year. The survey found that consumers were less optimistic about their personal finances and the general economic situation, as well as less willing to make major purchases.
Joe Staton, client strategy director at GfK, said: “Consumers have been juggling rising Covid infection rates alongside soaring inflation expectations and the anticipated ending of furlough support at the end of this month. These pressures are weakening our views on our personal financial situation for both the past year and also for the year ahead.”
The Bank of England expects inflation to rise above 4% by the end of this year, more than double its 2% target, driven by higher energy prices and global supply chain pressures. The central bank has signalled that it may start to raise interest rates next year to keep inflation under control, which could further squeeze household budgets.
Meanwhile, Covid cases have been rising again in recent weeks, fuelled by the Delta variant and the easing of social distancing measures. The UK reported more than 37,000 new cases and 147 deaths on Wednesday, bringing the total number of deaths to more than 134,000 since the start of the pandemic. The government has warned that it may reintroduce some restrictions in England if the situation worsens, such as mandatory face masks and vaccine passports.
The furlough scheme, which has supported more than 11 million workers during the pandemic, is due to end on September 30th. According to the latest figures from HM Revenue and Customs (HMRC), there were still 1.6 million people on furlough at the end of July, down from a peak of 8.9 million in May 2020. However, some sectors, such as hospitality and leisure, still have a high proportion of workers on furlough, raising fears of a surge in unemployment when the scheme ends.
Stock markets rise as Nvidia surges on record revenues
Despite the gloomy retail data, UK stock markets rose on Thursday, following a positive lead from Wall Street. The FTSE 100 index closed up 0.5% at 7,078 points, while the FTSE 250 index gained 0.7% to end at 23,823 points.
One of the main drivers of the market rally was Nvidia, the US chipmaker, which reported record revenues of $6.5 billion for its second quarter on Wednesday night, beating analysts’ expectations. The company also raised its guidance for the current quarter, citing strong demand for its graphics cards and data centre products. Nvidia’s shares surged by 4% to $223.75 on Thursday, making it the most valuable US semiconductor company, with a market capitalisation of more than $550 billion.
Nvidia’s results boosted other chipmakers, such as AMD and Intel, as well as UK-based ARM Holdings, which Nvidia is trying to buy for $40 billion. The deal, which was announced last year, is facing regulatory scrutiny in the UK, the US, China and the EU, amid concerns that it could harm competition and innovation in the chip industry. Nvidia has said that it expects the deal to close by early 2023.
Other UK companies that performed well on Thursday included Next, the fashion retailer, which raised its profit forecast for the second time this year, after reporting strong sales growth in the first half. Next’s shares rose by 2.6% to £79.96, making it the top performer on the FTSE 100. The company said that its sales were 18.6% higher than in 2019, before the pandemic, and that its online business had continued to grow despite the reopening of physical stores.
Another winner was Smiths Group, the engineering conglomerate, which agreed to sell its medical division to US private equity firm TA Associates for $2.3 billion. Smiths Group’s shares jumped by 4.1% to £15.54, as investors welcomed the deal, which will allow the company to focus on its core industrial technology businesses. The company said that it would return £1.5 billion to shareholders from the proceeds of the sale.
