Concerns over the health of the UK high street have been prominent for some time now. However, this winter has been particularly brutal for bricks and mortar retailers.
Back in January FTSE 250 retailer Mothercare dropped over 25% to its lowest level on record, after a profit warning, and this proved to be just the start of what was to come. Over the last few weeks Toys R US, Maplin and, most recently, New Look have been the latest to fall victim to the harsh winds blowing down the High Street.
The British Retail Consortium (BRC) reported that the UK consumer was still spending in February and spending more than what analysts had anticipated. BRC data showed that retail sales increased 0.6% in February, on par with January and ahead of the 0.5% increase that was expected. On the surface this looked like good news. However, delving deeper in to the figures, non-food sales fell by 1.1% in the three months to February, well below the 12-month average, highlighting the struggle consumers are facing.
Inflation, stemming from the Brexit referendum devaluation of the pound, remains elevated at 3%, eating into consumers’ budget. This is pushing consumers to put more of their paycheque towards essential items, leaving less left over to spend on discretionary, predominantly non-food retail items. Add into the equation weak wage growth of just 2.5% and we can see that wages in real terms are falling, creating a challenging climate for the consumer, which transfers across to poor sales on the High Street.
The data also showed that UK consumers are increasingly shunning the high street and shopping online. Figures from Barclaycard also support this notion with online spending on Barclaycard up 14.1% in December 2017, compared to the same month a year earlier. Meanwhile in store spending increased just 0.3% (the figures are not adjusted for inflation). This, in addition to falling footfall on the High Streets serves to highlight the extent of the online shopping revolution.
The shake out of the high street is expected to gain momentum in the near term as retailers come under pressure from reduced consumer spending, increased costs and ongoing changes to habits within the industry. Retailers with large physical stores are expected to come under particular pressure.
Looking further ahead the outlook for the UK jobs market remains strong and wages are expected to increase. Meanwhile inflation is expected to start easing back later this year, meaning things could slowly be on the up for the UK consumer.
This can only be good news for retailers, especially those retailers focusing on their online offering. However, whilst the squeeze on the consumer is set to be temporary, the changing habits of shoppers are a more permanent feature and will inevitably keep a downward pressure on the high street going forwards.
Fiona Cincotta
Fiona Cincotta is a senior market analyst at www.cityindex.co.uk
