UK retailers had a bleak October as shoppers shunned stores and cut back on spending, raising fears over the health of the UK economy.
Consumer spending shrank by 2% in October, the fastest year-on-year decline in four years, according to credit card provider Visa. This is the fifth monthly decline in six months, and was driven by a 5% decline in spending on the high street.
Clothing and footwear sales slumped by 9%, the biggest year-on-year decline since Visa started its survey in 2009.
Food and drink retailers experienced a 2% drop in takings, the biggest fall since March 2014. Spending on recreation and culture dropped by 2.9%, the biggest decline since March 2011.
Mark Antipof, Visa’s chief commercial officer, said the crucial pre-Christmas trading season got off to a poor start, as households suffer financial strain.
“The unseasonably warm weather didnot help, but the clothing sector has been struggling to increase sales since the beginning of this year. This is reflected more broadly in high street performance, with spending falling for the sixth month in a row,” Antipof said.
Visa said the poor performance was partly due to the drop in real wages in recent months, as pay rises have failed to keep up with inflation. But it added that the slowdown in growth this year, and Brexit uncertainty, were also gnawing at consumer confidence.
The Bank of England’s decision to raise interest rates, to 0.5%, for the first time in a decade could also hurt household spending in the coming months, Visa said.
The British Retail Consortium (BRC) also reported a drop in the number of people going shopping last month. Footfall declined by 2% year-on-year in October, the biggest fall since the EU referendum.
Even retail parks – usually a solid performer – experienced a drop in visitor numbers.
Diane Wehrle, marketing and insights director at Springboard, said shops were hit by a “black trading cloud” in October.
“Both high streets and shopping centres are clearly under pressure, with footfall during retail trading hours dropping by more than 3% in each,” she said.
“And the fact that retail park footfall slipped into negative territory – even during daytime hours – whilst prior to November recording seven consecutive months of growth, is definitive evidence of consumers tightening their purse strings.”
Official retail sales figures to be released on Thursday are expected to confirm the drop in consumer spending. The City is bracing for the first annual drop since March 2013, with economists predicting a 0.7% decline compared with October 2016.
“Consumer spending remains under pressure amid the strain that high inflation is currently placing on household finances,” said George Brown, economist at Investec. “Nevertheless, our forecasts suggest consumer price inflation may have peaked, which may offer some respite for retailers further ahead.”
Several UK retailers have reported underwhelming financial results in recent weeks. Next warned that trading is “extremely volatile” at present. Next shares plunged almost 10% after it reported a 7.7% drop in high street takings in the three months to 29 October.
Marks & Spencer, another high street stalwart, is speeding up the closure of underperforming clothing departments and slowing the expansion of its Simply Food chain.
With sales slowing, retailers have been increasingly vocal about the need to reform Britain’s business rates.
“Without decisive action from the chancellor in his upcoming budget, then retailers face a stark £270m leap in their rates bill from April; money which could otherwise be invested in stores and digital innovation,” said Helen Dickinson, BRC chief executive.
Real estate consultancy Colliers International has calculated that M&S’s business rates bill alone is now more than £570m, and set to rise over the next five years.
John Webber, head of rating at Colliers International, said the business rates regime was adding to the problems faced by the sector.
“It’s no wonder Debenhams and M&S are looking to close stores in some areas,” he said. “Obviously retailers are having a tough time anyway – uncertainty over Brexit, rises in the ‘national living wage’, interest rates on the up and the rise of the internet retailers, who don’t have physical stores to pay business rates on. All of this is impacting on sales and profits of many businesses, who are feeling increasingly vulnerable.”