Silvia Rindone, EY UK&I Retail Lead, comments:
“The latest figures from the ONS show that retail sales volumes rose by 1.4% following a fall of 1.2% in March 2022, as consumers made the most of the good weather over the Easter bank holiday weekend. Despite the increase in monthly sales, the overall trend for the three months to April 2022, shows that retail sales volumes fell by 0.3% when compared to the previous three months, continuing the downward trend since summer 2021, as consumer spending continues to slow.
“The figures underline the challenges ahead for UK retail. In its Spring Forecast, the EY ITEM Club said that it expected consumer spending would rise 4.9% in 2022, down from the 5.1% and 5.6% growth predicted in March and February. The rising cost of living is affecting almost all households, but it is having a disproportionate impact on those at the lower end of the income scale.
“Consumers are now making more considered decisions about how to spend their money as a result of the squeeze on their finances. We expect significant ‘trading down’ to ‘own-label’ brands, repeating what we saw in the 2008-9 financial crisis, but we also expect an increasing focus on ‘value for money’ options as sustainability-conscious consumers look for purchases that will last.
“Retailers are now facing a combination of high inflation and supply chain and demand headwinds which will create a challenge for the sales growth that has helped drive the post-pandemic recovery so far. Earlier this month, EY-Parthenon’s profit warning analysis found that FTSE Retailers have been most affected by rising costs and supply chain challenges, with UK-listed retailers issuing nine profit warnings in Q1 2022 – the highest quarterly total since the start of the pandemic.
“Retailers will need to ensure they respond quickly to consumers’ concerns and select the right value strategy for their business to retain cost conscious shoppers. This could include exploring ways to reduce their own cost base and range rationalisation to reduce supply chain costs.”