Retail reacts to February 2023 ONS data: "Retailers are going for more tactical opportunities"

Returning to pre-pandemic levels, British retailers experienced a stronger-than-expected month in February, according to data from the Office for National Statistics (ONS).

The ONS said that the soaring cost of living had helped some shops such as discount department stores. Across the UK retail sector sales volumes rose by 1.2%, with sales in non-food stores rising by 2.4%.

Key experts across the fashion and retail industry reacted to the February 2023 data:

Darren Morgan, ONS Director of Economic Statistics

"Retail grew sharply in February with sales returning to their pre-pandemic level. However, the broader picture remains more subdued, with retail sales showing little real growth, particularly over the last 18 months with price rises hitting consumer spending power.

“In the latest month, discount department stores performed strongly with food shops also doing well as consumers, confronted with cost-of-living pressures, cut back on eating out or purchasing takeaways."

Silvia Rindone, EY UK&I Retail Lead

Silvia Rindone, EY UK&I Retail Lead:

"This is a welcome positive improvement, that shows some cautionary confidence from consumers. However, the 1.6% month-on-month increase in value terms is largely due to inflation. Looking ahead, growth within the retail sector is likely to be minimal.

"The Spring Budget saw no direct support for the retail sector, but the labour market reforms, including the provision of additional early years childcare support, will be welcome news to retailers who have been facing staff shortages.

"While the retail sector continues to face a number of challenges, brands and retailers which are managing to adapt may see opportunities to acquire both customers and market share. Delivering an attractive value position at an effective price point will be critical to improving business resilience and growth."

Dan Edelman, VP & UK GM of Merchant Services at American Express:

"Today’s retail sales figures paired with inflation unexpectedly jumping and interest rates being hiked again, means Spring has not sprung in the way retailers might have hoped.

"Retailers face a battle to retain loyalty as customers continue to seek out value from their spend. While discounting could provide some short-term gains, it’s critical that loyalty is reviewed holistically. The influence of value, experience and convenience to the overall sentiment a customer has about a particular brand can’t be underestimated.

"In recent weeks, some brands have been scrutinised as a result of rolling back on their reward schemes. However a challenging economy requires agility, and they are likely rethinking strategies to boost loyalty in other ways, with service and experience at the forefront. American Express’ latest research shows that almost three-quarters (73%) of shoppers wouldn’t buy from the same retailer again if they had a bad experience, meaning brands must redouble their efforts in order to secure ongoing customer loyalty."

Helen Dickinson, CEO of the British Retail Consortium

Helen Dickinson, CEO of the British Retail Consortium:

"Rising inflation meant that sales volumes remained firmly in the red. Despite the ongoing cost of living squeeze, consumers were still ready to spend on what they needed, with higher sales for categories including clothing and cosmetics.

"There remain challenges to consumer spending in the coming months with the end of the energy bill support scheme in April and the increasing cost of borrowing."

Nicholas Hyett, Investment Analyst at Wealth Club:

"The UK is finding its shopping habit hard to kick it would seem. Retail sales volumes have come in stronger than expected for the second month this year despite the cost of living squeeze.

"But beneath that headline, there's clear evidence that shoppers are being careful with their money. Growth in non-food sales was driven by discounters and second hand shops, while the rise in food volumes is attributed to people choosing to eat in and avoid pricey meals out. Shoppers may be more willing to spend, but only when there's a bargain to be had.

"Longer term, sales volumes remain lower than they were this time last year. With the Bank of England expecting the UK economy to hold up better than previously expected, that provides room for several months more sales growth. Whether shoppers find the confidence to return to the mid-market space though remains to be seen."

Kelly Miely, Head of Retail at Deloitte

Kelly Miely, Head of Retail at Deloitte:

"February saw a second consecutive month of higher-than-expected retail sales volume growth, in a sign that the industry may be turning a corner.

"However, the unexpected increase in inflation, with food prices at a 45-year high, still points to a strain on both consumers and retailers remaining.

"Businesses have been putting a greater focus on cost and efficiency. Overall, retailers are going for more tactical opportunities, whether it is making strategic investments or difficult decisions on reducing costs, trying to unlock value for the longer term and ensure the recovery and growth of their businesses."

Jon Boland, General Manager of Clover UK:

"Retail and hospitality businesses will be breathing a sigh of relief that the rebound in consumer confidence and spending seems to be sustained in the face of disposable incomes being squeezed. But the picture is far more complex when we look across our customer base of more than 80,000 SMEs. As inflation bites, we’re seeing a clear drive towards value.

"We also continue to see spending holding up strongly in bars, pubs, restaurants and other entertainment venues, which means that there is still space in the customer’s wallet for some modest luxuries. On the other side of the coin, spending on hotels, travel and luxury retail is relatively weak. These trends seem unlikely to reverse until inflation eases and consumer confidence normalises. For smaller businesses, this means a laser focus on costs, cashflow and inventory management will remain critical in the months ahead – as will their ability to appeal to belt-tightening consumers to protect revenues."

Gizem Günday, Partner at McKinsey & Company:

"The rise in retail sales will be a relief, given the impact of fruit and vegetable shortages throughout the month. However, the overall sales growth is still driven by high prices. As this growth is predominantly inflation-driven, it will be likely eroding retailers’ profit margins.

"Prolonged high inflation has meant we haven’t seen an uptick in spending volumes around special events, such as Christmas. So, with Easter and Ramadan ahead, retailers will be looking to their price and promotional strategies to help drive volume without significantly impacting their margins. Consumer spending on food will likely form a more significant part of this ‘occasion spend’ than other categories such as clothing, as people seek to celebrate with their families."