Retailers continue to face a challenging trading environment, shaped by elevated living costs and higher borrowing rates.
Retailers continue to face a challenging trading environment, shaped by elevated living costs and higher borrowing rates. Still, the impact may vary across regions and demographics, which warrants further analysis to help stakeholders understand specific market dynamics.
According to the latest High Street Sales Tracker from BDO, retail sales in discretionary sectors grew by only 1.9% in February compared to the same month last year, highlighting a sluggish recovery in categories such as fashion, homewares, and lifestyle products, which may signal deeper underlying issues.
This modest rise marks the tenth occasion in the past 12 months that sales growth has lagged inflation, indicating a troubling trend in which real sales volumes are in retreat. While retailers enjoyed a short-lived resurgence in January, fuelled by significant discounts, February’s results reveal a waning momentum that cannot be ignored.
In-store sales recorded a minimal year-on-year growth of 0.6%, reflecting not only subdued foot traffic but also cautious consumer spending. Notably, the lifestyle category—comprising health, beauty, and gifting—suffered considerably, with total lifestyle sales slipping by 0.2% and high street lifestyle sales dropping by 1.7%.
This data underscores the ongoing pressure on discretionary spending as households increasingly prioritise essential expenses. Retailers are navigating a demanding trading environment characterised by rising living costs, higher borrowing rates, and a significant shift toward online shopping. Acknowledging these challenges can help stakeholders feel resilient and prepared for ongoing market shifts.
While nominal sales figures might indicate slight growth, inflation-adjusted metrics reveal ongoing challenges. As we approach spring, retailers can find hope in seasonal factors like warmer weather and special occasions that could boost sales, offering potential for future improvement.
Industry observers note that while nominal sales show slight growth, inflation-adjusted figures paint a more subdued picture of consumer demand.
Retailers will be hoping for improved performance heading into the spring season, when warmer weather and seasonal events traditionally boost spending in fashion and lifestyle categories.
However, sustained real-terms growth will depend on improved consumer confidence and easing cost pressures. Recognising this, retailers should prioritise strategies that strengthen consumer trust, which will be vital for future sales recovery and stability.
Sophie Michael, Head of Retail and Wholesale at BDO, said: “Despite the seasonal boost typically associated with Valentine’s Day, there was no sign of consumers rekindling their love for the high street.
“Whilst inflation has fallen and we’ve seen reports of a small uptick in consumer confidence regarding personal finances, the economic climate remains highly uncertain as UK unemployment has hit a five-year high and wage growth has slowed. This creates a perfect storm of challenges consumers into shops and spending money. Despite consumer confidence rising slightly and inflation falling, spending in discretionary categories remains extremely weak.
“The concerns don’t end there, as retailers themselves are facing the burden of increasing costs, leading to further delays in investment and reductions in headcount.
“Gifting events like Christmas and Valentine’s Day have so far failed to deliver and retailers, particularly those in the lifestyle category, will be hoping for a spending boost in March thanks to Mother’s Day. However, the purse strings remain tight with consumers also facing decisions on whether to spend on items or experiences.
“Looking ahead, retailers must find new ways to adapt and innovate in order to encourage shoppers to part with their hard-earned cash or risk experiencing a Spring that feels as bleak as Winter.”
