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Retail sales growth continues – but clouds are on the horizon

"With the latest KPMG/BRC Retail Sales Barometer revealing slower sales growth in March 2021, Don Williams, Retail Partner at KPMG examines the priorities for retailers as consumer confidence comes under pressure on a number of fronts.

Our latest KPMG/BRC retail sales monitor found that growth on the high street continued in March with total sales up 3.1% compared to last year when the UK emerged from its third lockdown. This robust performance was driven by non-food categories which increased by 15.2%, with almost every category performing strongly, particularly clothing, healthcare and home dining as shoppers started to plan ahead for embracing life with COVID-19 and look forward to warmer weather.

The drag on sales growth in March however, came from the performance of food which was down 6.1% on March 2020.  Some of the decline in food sales will be driven by the timing of Easter and compounded by the impact of the week or so of lockdown experienced in 2020.  However, with the full impact of the Ukraine crisis and other macro factors on food price inflation yet to be felt, food retailers will be hoping that consumers feel the need to indulge over the Easter weekend and that the weather outlook for those celebrations is positive.

Unsurprisingly, online sales volumes fell across all categories compared to March 2021. Online penetration however remained high at over 38%. This continues to support the view that there has been a “locked in step up” in online purchasing which will continue to force retailers to focus on finding the most effective mix between physical and online retailing for their brand and category.

The slowdown in sales growth suggests there are clouds on the horizon on the demand side as household budgets come under unparalleled pressure from rising costs, an increasing tax burden and competition from tempting foreign holidays. This is leading to significant concern for many on what this will mean for consumer confidence and especially what impact that will have on discretionary spend categories.   

Additionally, retailers are facing into their own battle with rising costs and inflation as well as skills shortages and supply chain hangovers from COVID-19. Retailers face walking a tightrope between absorbing rising costs themselves or passing these costs on to consumers at a time when competition for share of a shrinking wallet is going to be increasingly fierce.

The best retailers will continue to be able to balance self-help measures with sharp attention on areas that can yield cost and efficiency gains with a clear focus and understanding of their customer and what they want to buy and how.  There is certainly concern, amongst many, that in the months to come, consumers will increasingly be forced to cut trips to the high street (physically and virtually) to counteract rising household bills and a reduction in income.  Only time will tell what this means for the longer-term health of the retail sector."