MarketLine Blog

UK High Street’s worst summer for six years

The UK high street has suffered its worst summer since 2009 amid concerns over a potential interest rate rise and unseasonably cold weather.

According to BDO’s High Street Sales Tracker, like-for like sales fell 1.1% in July, marking the third consecutive month of decline, the first time such a streak has been seen since the summer of 2009. Fashion retail was hardest hit in July, down 1.4% year-on-year, while lifestyle goods and homewares saw drops of 0.5% and 1.1% respectively.

As analyzed in the MarketLine case study The UK High Street: The decline of a British institution, decline on the UK high street is not a new phenomenon as internet shopping and large, out-of-town shopping centers have won the wallets of shoppers across the country. However, this latest data is of concern as it comes at a time when much talk of the economy has a positive slant. Furthermore, the BDO tracker shows that, while consumers are reluctant to spend, they are opting to spend on trips to bars and restaurants when they do part with their money. Retailers and analysts have proffered several explanations.

Speculation continues to swirl concerning a potential interest rate rise with rhetoric from the Bank of England suggesting that this may not be too long in coming. The obvious impact in terms of increased mortgage payments for those on standard variable rate mortgages has caused some people to tighten their belts or deliberately overpay while the rate is low in anticipation of such a move. The unusually cold start to the summer has seen fashion retailers struggle to sell summer clothing stock and some have had to resort to starting summer sales earlier, reducing both sales revenue and profit. Disposable incomes have increased but it is thought that consumers are starting to spend on big ticket items, the purchase of which they had previously postponed; most notably cars.

While fashion retailers have started sales earlier, the number of retailers offering heavy discounts is lower than in previous years and this is a driver of lower shopper numbers and sector revenues. As the economy struggled in recent years, heavy discounting became the norm, setting expectations among consumers and creating a brinksmanship whereby they would deliberately wait in the knowledge that a sale was coming. This strategy may have helped retailers survive in the short term but may have backfired in the long run as there are signs that this may need to become an embedded part of the way they operate.

While a three month period hardly constitutes a need for panic, retailers must act and find ways to entice shoppers into stores and to spend their money. This may well create a need for further heavy discounting; creating downward price pressure that has the potential to spread through the value chain. It remains to be seen what the long-term economic impact of a poor retail sector would be, but if action is not taken soon, we may find out sooner than thought.

Posted in Fashion, Retail.

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