Silvia Rindone, EY UK&I Retail Lead, comments:
“With shoppers challenged by inflation, the rising cost of living and falling consumer confidence, the drop in retail sales volumes in August by 1.6% was unsurprising. Shoppers are now taking decisive action by opting for ‘own-label’ alternatives or switching to discount supermarkets which have continued to win market share.
“Online sales continued their downward trajectory, falling 2.6% in August as growth in the sector stabilised. However, they are still well above pre-pandemic levels, as shoppers continue to return to high streets and shopping centres. Many pure-play retailers have also been experiencing slowing sales growth, alongside high commodity prices, increasing delivery costs and product returns. Discretionary spending on ‘big ticket’ items like furniture declined in August; a trend which is likely to continue as shoppers prepare for the energy price rises in October.”
Trilemma for retailers
Silvia adds: “The challenge for retailers now is how to prepare for the all-important ‘golden quarter’. They are facing an unprecedented ‘trilemma’ of rising costs, slowing demand and excess supply creating challenging trading conditions. Many businesses, particularly fashion retailers, overestimated demand and have been left with excess stock which they are selling at a heavy discount to try and improve cash flow and working capital.
“It is critical that retailers review their pricing strategy – it’s now no longer a choice but essential to their long-term survival. Many are already doing this by introducing value orientated ranges to capture consumers who are trading down, but still want a compelling customer proposition. Valuable customer insight will also enable them to make decisions about range rationalisation and product delisting to create efficiencies.
“Retailers need to consider the impact of wage inflation and how this is absorbed in their pricing strategies. Government financial support for the spiralling cost of living crisis this autumn may help temper the impact of weakening consumer confidence and offer consumers some much-needed breathing space in the run up to Christmas, but overall demand is still likely to be dampened.”