Consumer spending is in ‘long-term decline’ in Britain as clothing sales continue to fall

    Retail sales fall in May after April rebound; British Retail Consortium CEO says “longer-term trend of a decline in consumer spending power”; Food sales rising but non-food sales like fashion and homeware tanking.

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A man carries a shopping basket in an Asda store in northwest London, Britain August 18, 2015.
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REUTERS/Suzanne Plunkett

LONDON – Retail sales fell in May, according to new figures from the British Retail Consortium (BRC), highlighting “a longer-term trend of a decline in consumer spending power” as inflation bites.

The BRC said on Tuesday that core retail sales fell by 0.4% in May compared to the same month a year earlier. Total sales, which include sales from new stores opened in the year, rose by 0.2%.

The figures put paid to hopes of a recovery for retail sales. After a weak start to the year, sales rebounded in April thanks to the late timing of Easter.

However, May’s sales figures suggest April was a blip.

BRC’s CEO Helen Dickinson said in a statement: “Overall, May’s sales slowdown is indicative of a longer-term trend of a decline in consumer spending power. As household budgets become increasingly squeezed by inflation, predominantly in the non-retail part of the consumer basket, it’s vital that the next Government helps retailers keep prices low for ordinary shoppers.”

Bruno Monteyne, a retail analyst at Bernstein, said in a separate note on Monday: “The overall consumer environment is starting to look more challenging: disposable income growth slowing, weak consumer confidence, and prices in non-food (as well as food) will rise further as the FX move feeds through.”

Food vs. fashion

BRC’s sales figures highlight a growing gulf between food and non-food sales. In the 3 months to May, total food sales grew by 4.3% on average. This is the strongest 3-month average since February 2012. The growth appears to be mainly down to rising prices driven by inflation.

Inflation hit 2.7% in April, its highest level since 2013, as last year’s post-Brexit vote fall in the pound begins to push up prices. The Bank of England expects inflation to peak at close to 3% later this year.

KPMG’s UK head of retail Paul Martin says in the BRC statement: “The impact of inflationary pressures on the nation’s purse continues to play out in this month’s figures, with shoppers evidently spending more on food and drink than on non-food purchases.”

Meanwhile, core non-food sales in the UK decreased 0.3% in May and increased 0.1% on a total basis. This is the worst growth recorded since May 2011.

Consumers appear to be cutting back on fashion and home spending while continuing to keep their weekly food shops unchanged despite rising food inflation. BDO’s High Street sales tracker last week said fashion sales fell by 3.9% in May.

Monteyne says in Monday’s note: “Spending on food remains at an all-time low: just 12% of disposable income. Hence we expect that low levels of food inflation can initially be absorbed by consumers.

“At inflation above 2% we expect to see switching behaviour as consumers trade down – but with no impact on retailer margins. Our expectation is for food inflation to hit 4% by Q4, of which 1% will be dialed out by consumers trading down.”

KPMG’s Martin says: “With inflation continuing to rise and wage growth stagnating, consumers are starting to feel the pinch – although the highly competitive nature of the UK grocery market continues to play out in the consumer’s favour.”

Earlier this year, UBS said it found a “dramatic reduction in consumer discretionary income and intention to spend,” and predicted that clothing retailers would be the worst hit.

GfK’s survey of consumer confidence in May found an improvement among shoppers, but the balance is still negative at -5.