Retail reacts to January 2023 ONS data: "2023 is proving to be a more challenging environment"

UK retailers recorded an unexpected rise in sales last month as online shops were boosted by demand for discounts during the January sales, but clothing store sales "fell back sharply", according to official figures.

The Office for National Statistics (ONS) said retailer sales volumes increased by 0.5% in January, following a fall of 1.2% in December.

Retail sales volumes are, nevertheless, still 1.4% lower than pre-pandemic levels from February 2022.

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

Darren Morgan, ONS Director of Economic Statistics:

“After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline. However, after four months of consecutive growth, clothing store sales fell back sharply.

“Meanwhile, discounting helped boost sales for online retailers as well as jewellers, cosmetic stores and carpet and furnishing shops.”

Silvia Rindone, EY UK&I Retail Lead:

Silvia Rindone, EY UK&I Retail Lead:

“Although retail sales volumes marginally increased by 0.5% month-on-month in January, largely due to promotional activity, when looking at the bigger picture, sales volumes fell by 5.7% in the three months to January when compared with the same period last year.

“While not unexpected during what is, traditionally, a quiet trading period, the backdrop of rising inflation and falling consumer confidence means today’s figures are likely to be a sign of things to come.

“Christmas trading updates from retailers over the last few weeks have been varied and reflect a highly pressurised market in which companies are competing for the same share of squeezed wallets amid rising costs and overheads.

“With consumers likely to continue tightening household budgets in 2023, it will be critical for companies to keep adapting and reflecting customer priorities, which for most consumers in the short-term will be a compelling price proposition. Retailers and brands also need to think about stakeholder confidence, as well as consumer confidence. The support of shareholders, lenders, landlords, pension trustees and credit insurers is critical in difficult times, when confidence is lost far quicker than it is gained.”

Oliver Vernon-Harcourt, Head of Retail at Deloitte:

“January’s retail sales rose unexpectedly despite consumers facing a longer wait for payday and ongoing high food prices. The retail industry is entering a transitionary period as inflation eases and consumer confidence shows early signs of improvement.

"However, times continue to be tough for the retail sector. Leaders' focus will remain on sales growth while managing higher costs and changing demand. To do this, retailers will need to ensure they offer the right balance of quality and value for consumers to spend their hard-earned money.

"For those that continue to invest in both their people and customer engagement, better times are ahead.”

CEO of the British Retail Consortium (BRC) Helen Dickinson OBE

Helen Dickinson, CEO of the British Retail Consortium:

“Widespread January sales helped sales growth remain positive as the industry entered the New Year. Despite this, the rise in consumer spending could not keep up with the double-digit inflation rates, with another fall in retail volumes. Larger purchases were hit harder as consumers tightened their purse strings or traded down to value brands. Meanwhile, clothing and footwear saw stronger growth last month.

“With consumer confidence falling slightly, and high costs throughout the supply chain preventing prices from falling, it is a bumpy road for households. However, retailers are taking steps to cut costs and limit price rises where they can, to help their hard-pressed customers.”

Carly Donovan, Associate Partner at McKinsey & Company:

“Retail sales volumes grew in January by 0.5%, but sales value grew 0.6%. Meaning customers are buying less, and spending more. High inflation in essential categories (like food and household goods), is capturing a larger part of the share of wallet leaving consumers with less to spend in more discretionary categories.

“Although this small growth in retail sales volumes is slightly better than anticipated. Unsurprisingly, 2023 is proving to be a more challenging environment with sales remaining at 1.4% below their pre-COVID-19 levels.

“This picture looks better online, where sales volumes rose by 2% in January 2023. The proportion of online retail sales is now at 25%, significantly above pre-COVID-19 levels (19.8% in 2022) suggesting that online shopping behaviours established in the pandemic are here to stay.

“In categories like textiles, clothing and footwear – online sales as a proportion of total sales have grown both relative to the previous month, and the previous year – suggesting online sales offers have been more successful in engaging consumers here.”

Alan Thomas, UK CEO at Simply Business:

“Naturally, the marginal rise in retail sales figures presents some light relief for small businesses. Having said that, there continue to be a number of elements at play which are disproportionately harming the SME community.

“Our research has found that four in five small business owners are worried about the impact the cost of living crisis will have on their business, and that a quarter of SME owners are worried that they, quite candidly, will not be able to pay their bills this year. Many are resultantly being forced to implement price increases, slow their plans for expansion, and even stop hiring.

“The UK’s 5.6 million small businesses account for over 99% of the firms operating in the country and contribute trillions of pounds a year to the economy. A blocker to their ability to grow and innovate is ultimately a blocker to the entire UK economy. We must not forget the crucial role small business owners play when it comes to our recovery.”

Charlie Huggins, Head of Equities at Wealth Club:

“The increase in retail sales figures in January suggests that, while the UK consumer may not be feeling flush with cash, they are still spending. Consumer spending appears to be holding up, at least for now, despite the economic headlines.

“The economic picture is looking a lot less grim than in the Autumn, following the disastrous mini budget. Sterling has staged a mini-recovery and mortgage rates have fallen in recent months, despite interest rates going in the other direction. This may have injected some much needed optimism into the UK consumer.

“That said, it is far too early to declare victory. With inflation still eating into consumers’ pockets and many people yet to refinance their mortgages, pressure on retailers could build over the coming months."