Partner & Managing Director, London
After an exceptionally strong May, June proved that a record-breaking summer can be a blessing as well as a curse as several sub-sectors saw a decline in sales when compared to the previous year. Overall the picture was positive, whilst not quite reaching the heights set in the previous month, retailers experienced a 4.4% value growth coupled with 3.0% volume growth when compared to June 2017.
A combination of record-breaking weather and World Cup fervour saw a large increase in food, drink, and barbecues much to the delight of the grocery sector. Fashion sales, in contrast, saw a value and volume decline of 0.5% and 1.3% respectively, as shoppers opted to avoid the high street and shifted their disposable income away from summer clothing.
In what has become a familiar story throughout 2018, the Office of National Statistics reported yet another month of record low unemployment paired with barely positive real wage growth. When considered alongside the interest rate raise that was announced by the Bank of England on Thursday the outlook for consumer spending remains stagnant. The uncertainty surrounding Brexit and the wider British economy will continue to cause instability in the sector.
Extreme weather remains at the forefront of retailers' woes with the "Beast from the East" creating a cold-snap that scared shoppers away from the high street and the recent heat wave likely to have a similar effect across several subsectors. Retailers should, however, be cautious not to continuously explain away poor results on one-off events whilst ignoring the overall downward trend, and instead ensure they adapt their offering to remain relevant in the current fast-changing retail environment.
Unemployment remained at its 41-year year low of 4.2%, dropping by 12,000 to 1.41 million. The number of job vacancies also reached a record high of 824,000 in the three months to June, raising the possibility that employment could increase further.
Frustratingly for the Bank of England, wages grew at their lowest rate in six months at 2.5%, only slightly outstripped inflation of 2.4%. This likely created doubt in the minds of the Bank of England's Monetary Policy Committee, who announced on Thursday an interest rate rise for only the second time since 2008. Stagnant wage growth coupled with higher borrowing costs could spell bad news for retailers, as consumers cut back on discretionary spending and big-ticket purchases.
Even if unemployment was to fall further, until the UK economy can demonstrate a period of sustained real wage growth, doubts about its strength will linger.
Consumer credit increased by £1.2bn to £213.2bn in June, representing a 6.2% increase when compared to the same month in the previous year. With stagnant wage growth, consumers continue to top up their spending with cheap credit.
For the first time since 1988 Britons were net borrowers, with the average household spending on average £900 more than they received in the past year. This trend was most evident in the poorest 10% of households, who spent two and a half times their disposable income.
The growth in consumer credit has slowed as of late, and will likely decrease further following the interest rate rise. As consumers begin to live within their means it is likely that the decrease in household expenditure will be felt by retailers across the spectrum.
Footfall declined by 2.6% in June compared to the previous month, marking the 29th consecutive month of year-on-year decline. This was blamed on warm weather driving shoppers away from the high street, however, the obvious underlying trend cannot be ignored.
The story was not the same across the UK however, with footfall in London expanding slightly by 0.9% on a year-on-year basis. The South West England and Wales continued its poor run with a year-on-year contraction of 7.9%. This marks the fifth consecutive month that the South West England and Wales has been the worst performing region in the UK.
Annual house price growth fell to its slowest pace in 5 years at 2.0%. The average house price was £215,444, a £1,826 increase when compared to the previous month. Scotland was the only region that saw an increase in the annual rate, growing at 3.1% compared to 0.2% in the previous quarter. London continued its decline, falling to 1.9% compared to a 1% decline in the previous quarter.
Despite the recent decline in London, the North-South decline is still evident, with some Northern areas still seeing house prices below the 2007 peak. Meanwhile in London prices are 50% above their 2007 peak.