January retail sales bounce back after dismal December but fashion drops 1.4%

UK retail sales bounced back in January from a record poor December performance, notching up their biggest single monthly gain in close to three years, but fashion was the only sector not to see growth.

The Office for National Statistics (ONS) said that retail sales volumes, which also include online retailers, rose 3.4% during January, up from a fall of 3.3% in December.

It was the fastest rise since April 2021, the month when non-essential retailers were allowed to reopen following the third national lockdown for the Covid-19 pandemic.

“After a very weak December, retail sales rebounded in January with the largest monthly rise since April 2021,” said Heather Bovill, deputy director for surveys and economic indicators at the ONS.

“This means that overall sales have now recovered to pre-December levels, although if we look at the broader picture, they are still below where they were pre-pandemic.

The January reading was also a lot higher than the 1.5% that economists had forecast, according to an average supplied by Pantheon Macroeconomics.

A lot of the change was due to food shops, which saw sales increase 3.4% during the months. Clothing, however, was down 1.4%, which analysts suggest is down to fashion being purchased during the "Golden Quarter" of promotional activity from Black Friday to Christmas, which weakens demand in what used to be the strong January Sales period.

“Sales increased across nearly all retail sectors, and it was a particularly strong month for supermarkets,” Bovill said.

“Household goods stores, sports shops and department store retailers were amongst those reporting robust trading due to January sales promotions.

“A fall in prices at the pump also meant a solid month for fuel sales. Clothing shops were the only area not to see growth this month.”

Analyst rection

EY UK&I Retail Lead Silvia Rindone

“January traditionally poses challenges for retailers as consumer budgets are stretched following the festive period, however after a record fall of 3.3% in December 2023, retail sales volumes rebounded by 3.4% in January, showing signs of a potential return to growth in 2024.

“This growth was led by food stores, which saw growth of 3.4%. There was sales volume growth in all subsectors apart from clothing and footwear which saw a 1.4% fall in monthly sales volumes. This is largely due to the changing role of the January sales; shoppers no longer queue in the early hours to find a bargain with retailers instead focussing their attention on key promotional dates during the ‘Golden Quarter’ such as Black Friday and Cyber Monday and discounting far earlier in the season. As a result, many shoppers cut back on discretionary spend at the start of the year.

“While shop price inflation fell to its lowest in two years and food inflation dropped for the ninth consecutive month, consumers are yet to feel the benefit. Rising gas and electricity prices as well as the wet weather means many shoppers are still to be convinced to return to the high street.

“Online spending values fell by 4.1% in January with volumes expected to remain flat throughout 2024 following a number of years of growth during the COVID pandemic. Online retailers are now facing similar challenges as physical stores. Businesses which operate on both models must look to adapt their omnichannel offerings to complement each other seamlessly.

“After a prolonged period of economic stagnation, the EY ITEM Club Winter Forecast anticipates consumer spending to rise to 0.9% in 2024, up from 0.7% as projected last year. With the 2024 Spring Budget on the horizon, retailers and consumers alike will be looking to the Chancellor to cut income tax and increase take-home pay for workers without adding additional cost burdens.

“During difficult times, retailers should continue to focus on getting the basics right whilst also adopting a growth and customer-focused mindset if they want to take advantage of potential growth later in the year. Promoting the right value proposition remains equally as important for brands and private labels as pricing remains the most influential decision driver for consumers.”

Deloitte head of retail Oliver Vernon-Harcourt

“The retail sector managed to shelter from the storms in January, as sales volumes rose more than expected in the first month of the year. This rebound is the largest monthly rise since April 2021 – a significant boost after a disappointing end to 2023. With inflation easing and consumer confidence continuing to rise, expectations are that the Bank of England may cut interest rates in the coming months, providing a further boost to spending power.

“However, with confirmation that the UK economy has now entered a recession, optimism from both consumers and retailers will likely remain tempered. We have seen over recent months that consumer sentiment has decoupled from spending, with many of those feeling more positive, still shopping with restraint.

“For many retailers, the focus will continue to be on getting the basics right: providing real value for money, creating great experiences both in-store and online, and offering a diverse range of innovative products. Stock availability and spring product launches will also require ongoing focus, as global shipping continues to be impacted by events in the Red Sea. Equally, retailers will need to keep one eye on the longer term to make sure they are ready for a potential improvement in consumer spending in the second half of 2024.”