Silvia Rindone, EY UK&I Retail Lead, comments:
“The latest figures from the ONS show that retail sales volumes fell by 0.5% in May 2022 with food store sales down by 1.6% from the previous month as retail sales continue to follow the downward trend seen since summer 2021.
“We are now seeing rising food prices and the cost of living begin to affect consumer spending at all levels of the socio-economic scale. At the start of the year, while lower income households were affected by rising commodity prices and inflation, we saw higher income consumers, buoyed by additional savings accumulated over the pandemic, spending their disposable income on holidays, eating out and high value products. However, we are now seeing those higher income groups also become more cautious and selective on where they are spending, particularly when it comes to big ticket items.
“Retailers are now facing a ‘trilemma’ of challenging trading conditions – rising costs, slowing demand and excess supply. Many businesses overestimated demand and purchased too much stock at the start of the year and have now been left with excess products which they are trying to sell at a heavy discount.
“The ONS data also shows the proportion of online retail sales fell slightly to 26.6% in May 2022 from 27.1% in April showing the stabilisation of online penetration which peaked during the pandemic. Many retailers pivoted during this period and heavily invested in their online infrastructure. However, average online basket values are falling which will signal testing times ahead for pure-play retailers.
“Looking ahead, we anticipate the retail sales over the summer months will remain steady. It is vital that retailers use this time to regroup and focus their attentions improving operational resilience and optimising working capital for what could be a challenging autumn.”