As consumers cut back on spending, retail sales reached historic lows in December and for the whole year.
In December, a crucial month for retailers due to the holidays, it was anticipated that retail sales would grow.
However, the number of items purchased by consumers in December decreased by 1% from November and by a record 5.8% from December 2021.
The Office for National Statistics (ONS) also verified that last year’s retail sales experienced the steepest decline ever.
Between 2021 and 2022, they decreased by 3%, which is the largest reduction since ONS records began in 1997.
Since last year, prices have risen substantially, primarily due to soaring energy expenses, putting strain on millions of people.
While the inflation rate is beginning to decline, it remains close to a 40-year high of 10.5%.
According to the ONS, retailers reported that “consumers are cutting back on spending due to rising costs and affordability concerns.
Despite a decrease in the number of items and food purchased in December, a big number of shops have claimed great Christmas sales based on value.
It’s important to note that sales growth has been driven by people paying more owing to inflation as opposed to purchasing more,” said Silvia Rindone, UK and Ireland retail strategy leader at accounting company EY.
John Adams, the managing director of Norwich department store Jarrold, reported that holiday sales had increased by 13%. Nonetheless, it appeared that individuals were spending more on fewer items.
“From our standpoint, they were more thoughtful about what they were purchasing, thus the average unit transaction increased,” he explained. People tended to purchase great items and invest in them as opposed to purchasing potentially frivolous items.
Stocking up in advance
According to the ONS, there was a dramatic decline in volume at non-food retailers in December, although food stores also reported a decline in sales.
According to the report, the decline in food purchases during December bolstered the notion that individuals stored up for Christmas sooner. In November, the volume of food store retail sales increased by 1%.
The ONS’s deputy director of surveys and economic indicators, Heather Bovill, noted that food sales decreased again in December due to higher food costs and the rising cost of living. This followed a month-over-month increase in November when customers stored up on food in advance.
Bill Grimsey, the former CEO of Iceland and Wickes, stated, “Christmas is the most crucial trading period for shops, especially in the food industry where volume is so crucial.”
Between November and December, online sales decreased as well. Online sales decreased from 25.9% to 25.4% in the prior month.
Ms. Bovill stated that feedback from retailers indicated “postal strike-related increases in in-store purchases”
Mr. Adams said: “Our foot traffic exceeded 2019 levels, exceeding pandemic thresholds. I believe that in the weeks leading up to Christmas, people were concerned about delivery disruptions due to the ongoing strikes, so there was a distinct shift toward in-store shopping.”
Shocking decline in retail sales
John Allan, chairman of the largest grocery chain in the United Kingdom, Tesco, said that while there is hope that inflation will decline sharply in the middle of the year, “it does not guarantee prices will fall.”
He stated, “I believe this means that price increases will be much less pronounced in the second half of this year, and it will likely be 2024 or later before inflation returns to its typical level, which we have enjoyed in previous years.”
Mr. Allan urged the administration to provide a comprehensive plan to stimulate economic growth.
“What we’d want to see from the government is a serious, well-considered, long-term growth strategy,” he said. “Only through sustained economic expansion will we be able to better the living standards of our fellow countrymen.”
Numerous large businesses have reported better-than-expected Christmas sales. But these ONS data are a bit of a reality check as to what’s going on.
We have been spending more but receiving less in return. Inflation has taken a significant bite out of our purchasing power in 2022. Which has a profound effect on retail sales.
Christmas reductions result in a shocking decline in retail sales
This year’s holiday sales are also boosted by easier comparisons to last year, which was disturbed by the Omicron variation of Covid and supply chain issues resulting in fewer stock.
There were fears that the holiday retail season would be disastrous. Consumers continued to spend, but this crucial season did not inspire much holiday spirit.
And it seems probable that spending will be restrained in the first half of this year. As greater bills, including credit card purchases, are on the horizon.
Additionally, the ONS revised down statistics for November. As opposed to the first projection of a 0.4% reduction, it was revealed that sales volumes fell by 0.5%.
According to Capital Economics, the December results represent “a poor close to a challenging year.”
According to Olivia Cross, an economist at Capital Economics, “today’s retail sales report shows that a portion of the economy’s resilience at the end of last year appeared to wane in December.”
