Insight

UK attention to retail: buoyant Christmas sales round off a strong final quarter for 2016

February 2017

Britain’s retailers enjoyed a strong finish to the year in December, which corresponded with the upbeat tone of many operators in their Christmas trading updates. Average value growth was reported at 5.6% in the final three months of 2016, in what has been a strong final quarter.

The UK retail market reported value and volume growth of 5.1% and 4.9% respectively when compared with December 2015. The sentiment across the industry and many leading firms was of a successful Christmas period, with reports of strong trading and positive like-for-like sales commonplace.

However as always, performance across the subsectors was varied. Amidst the trend of plummeting footfall, department stores such as Debenhams and John Lewis demonstrated the ability to still draw in shoppers and drive strong sales. However many operators continue to warn of the challenges facing profitability, and part of Debenhams positive trading reflected a retreat from the difficult fashion market, into other product categories such as beauty and gifting. This was, however, also the first Christmas without BHS on the high street.

For many clothing retailers, 2016 will likely mark a year to forget following some high profile casualties on the high street and sharp annual sales value decline of 2.6% when compared with the year prior. For some, 2017 didn’t begin any more favourably, as an investigation by Channel 4’s Dispatches highlighted exploitative conditions amongst some Leicester-based suppliers to numerous well-established operators.

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Unemployment

The ONS reported that the unemployment rate remained at 4.8% in the three months to November 2016 – an 11 year low.

The labour market also showed further signs of resilience as the employment rate held steady at a record 74.5% and wage growth also picked up slightly. Nonetheless, The Resolution Foundation warned that modest growth in pay may be likely to fall back over the coming months.

Analyst Laura Gardiner commented “Pay growth is set to change rapidly as inflation picks up. The big question for this year is whether pay settlements respond to rising prices and a tight jobs market. If they don’t, a fresh pay squeeze later this year remains on the cards”.

Consumer credit

The latest statistics showed that unsecured consumer credit rose to £192.9 billion in December 2016 which reflects growth of 7.9% when compared with the same month last year.

The rate of consumer borrowing has risen rapidly over the last few months, and has likely helped fuel the strong growth in retail spending seen recently. However debt charities have also warned that this boom in credit should set alarm bells ringing amongst the government, and Mark Carney commented that the Bank of England would be keeping a close eye on consumer spending going forward.

Footfall

Footfall continued to decline in the key trading month of December, as numbers on the high street fell by 2.8% when compared with the same month last year.

Analysts at Springboard reported that footfall on Christmas Eve and Boxing Day was down by 5.9% and 7.3% respectively when compared with the prior year, as changing consumer habits such as the shift of expenditure online continued to drive the downward trend.

Property prices

The average UK house price rose to £205,898 in December 2016, which reflects growth of 4.5% compared with the same month last year.

Nationwide’s Chief Economist commented that London’s significant period of outperformance may be drawing to a close, as annual growth in the capital fell below the UK average for the first year since 2008.

Looking ahead to 2017, Nationwide forecasts modest growth around 2%, as house shortages on the supply side continue and interest rates, which are expected to remain low, underpin demand.

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