Retail sales volumes are estimated to have fallen by 0.9% in March 2023, following a rise of 1.1% in February 2023 (revised from a rise of 1.2%), the latest ONS data reveals.
Looking at the broader picture, sales volumes rose by 0.6% in the three months to March 2023 when compared with the previous three months; the first three-month on three-month rise since August 2021.
Non-food stores sales volumes fell by 1.3% in March 2023, following a rise of 2.4% in February, with feedback from retailers that poor weather conditions throughout most of March affected sales.
Food store sales volumes fell by 0.7% in March 2023, following a rise of 0.6% in February 2023.
Non-store retailing (predominantly online retailers) sales volumes fell by 0.8% in March 2023, following a rise of 0.3% in February 2023.
Automotive fuel sales volumes rose by 0.2% in March 2023, following a fall of 1.2% in February 2023; sales remain 8.5% below their pre-coronavirus (COVID-19) February 2020 levels.
Oliver Vernon-Harcourt, head of retail at Deloitte, said: “The retail sector failed to spring into action in March as wet weather and persistent high inflation deterred consumers from visiting the high street.
“With food prices continuing to rise at their fastest annual rate in almost half a century, consumers have cut back on the size of their grocery baskets.
“Meanwhile, as non-food sales continue to fall, it will be crucial in the near future to focus on managing product ranges so that pricing, promotions and variety are all appealing to consumers sensitive to the cost-of-living. This will be key in driving sales and, in turn, avoiding excess stock and working capital at the end of the season.”
Silvia Rindone, EY UK&I retail lead comments: “The 0.9% decline in retail sales volumes in March was unsurprising as the sustained inflationary environment continues to leave consumers cautious about spending across food and non-food retail. Increasing food prices are forcing consumers to make choices to buy less as they pay more. The recent period of poor weather has also put many off from buying their spring-summer wardrobe and other non-discretionary items.
“However there may be a light at the end of the tunnel as the ‘three-month’ trajectory indicates that sales volumes rose in the three months to March 2023, the first quarterly rise since August 2021. As we enter spring, the Easter holidays and the various bank holiday weekends, should continue to drive food sales, however retailers must remain cautious with how sustainable this is as household disposable income continues to be squeezed.
“Data from EY’s Future Consumer Index shows an enhanced focus on value and utility – meaning cost isn’t always the defining factor when making a purchase. Retailers should take this into consideration when developing their value proposition. They will need to navigate a tight balance between rising costs and deciding how far they continue to pass on price increases without impacting the top line. Now more than ever having a clear strategy on the value proposition that delivers on what consumers want is critical. In an environment of slow volume growth, working capital and range/pricing decisions remain the most important considerations for retailers.”
Samantha Philips, partner at McKinsey & Company, said: “Retail sales volumes in March were lower than expected, partly driven by a less upbeat Mother’s Day”.
“Mothering Sunday can act as a boost to retail sales, driven by the desire of families to celebrate. This gift has failed to materialise and kept retail sales fairly static with consumers mindful of incremental expense”.
“On top of that, the lack of spending in food and clothing, is a signal that consumers are still very cautious about the economic outlook”.
“With bad weather dampening consumer demand, retailers will be hopeful that April’s festivities – Easter and Ramadan – prompted more sales. And, that the Coronation Bank Holiday in May will act as a reason for further celebration”.
“The proportion of sales online rose to 25.8% from 25.4%, which may suggest retailers are connecting with consumers outside of their own stores. Our recent research shows retailers are looking to third-party marketplaces, such as Amazon, to fuel new growth, with 92 percent of consumer brands and retailers now present on third-party marketplaces globally, offering unique products and running agile experiments.”
Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, comments: ‘It looks like the wet March weather played its part in dampening retail sales. Consumer confidence remains below par as people are still keeping a close eye on budgets and steering away from making non-essential purchases or going out.
‘April sees retailers having to shoulder further costs associated with the latest annual rise to the national minimum wage this month, and some are being adversely affected by the business rates review.
‘However, as the economic outlook and weather begins to improve, retailers’ optimism should rise as consumers look to buy DIY, garden and fashion products. With plenty of upcoming celebrations, including bank holidays, the King’s Coronation and Eurovision in Liverpool, mega-May is all to play for.’
Thomas Pugh, economist at RSM UK, added: ‘The 0.9% m/m drop in retail sales keeps the risk of a recession alive. GDP as a whole needs to fall by 0.5% m/m in March for Q1 to register a contraction. Given retail sales make up around a third of consumer spending, there is clearly a significant risk that GDP falls by that much, especially as the wet weather which dampened retail sales will also depress output in other sectors of the economy such as construction.
‘However, there are reasons to be a bit more optimistic looking forward. The impact of the wet weather will fade in April. What’s more, consumer confidence took a sharp upswing in April – pointing to higher spending, although it is still well below normal levels. Households’ finances should also start to pick up soon as inflation falls sharply but the tight labour market keeps wages high.
‘Overall, a recession remains on the cards. But even if the economy does fall into a technical recession, it will be mild and short with the economy returning to growth in the second half of this year.’