Sophie Michael, Head of Retail at BDO, looks at a difficult month for the high street and reflects on how the Budget might impact retailers.
Storm Doris hit the headlines last month after 95mph winds caused chaos on the roads and rail. But it wasn’t just garden fences and roof tiles that suffered, Storm Doris also severely damaged the UK’s high streets.
According to BDO’s High Street Sales Tracker (HSST), UK retailers have just experienced their worst February since 2009, with like-for-like sales dropping -2.2%.
The decline, coming off an already negative base of -1.7% for February 2016, marks the third month in a row of negative growth and the fourth consecutive February with no growth.
Year-on-year fashion sales were down -3.4% in February – the poorest result for the sector since September 2016 (when they dipped -5.9%).
Sales of homewares also fell for the first time since June 2016 – down 1.4% year-on-year – as households tightened their belts against rising prices. Even online sales slowed, growing at just 19.9% in February.
Strong sales of Valentines goods helped the lifestyle sector register weak growth of 0.4% year-on-year for February, but this couldn’t counteract a fall in footfall as the harsh weather hit the UK at the end of the month.
What next for the high street?
Tough times are continuing for the UK high street but is there any good news? Was there any solace in last week’s Budget?
The Chancellor told us growth in the economy was expected to be higher – and borrowing lower – than forecast in November, but that hasn’t translated into consumer spending power. Our figures make it clear that there continues to be intense pressure on consumers’ discretionary spending especially when you consider the relatively poor growth of online sales in February. Economic headwinds have significantly curbed spending.
There was some good news for retailers. Business rates had certainly been a headache for businesses and Chancellor alike so the £435m being spent to alleviate some of their impact is welcome.
There are other issues to be wary of. The majority of retailers’ price hedges ran out at the end of last year, and inflationary cost pressures have forced them to increase prices – sharply in some cases.
Retailers, more than ever before, should focus on product, quality, range and service. They should provide a differentiation which encourages and enables their target customer to justify paying full price at a time when the consumer purse will begin to tighten.
While these cost headwinds are a cause for concern, retailers need to find ways to ride out the storm and look to opportunities relevant to their business, such as exports or international expansion.
Sophie Michael is Partner and Head of Retail and Wholesale at BDO.