Retail sales volumes (quantity bought) are estimated to have rebounded by 3.4% in January 2024, following a record fall of 3.3% in December 2023 (revised from a fall of 3.2%). This was the largest monthly rise since April 2021 and returned volumes to November 2023 levels.
Sales volumes in all subsectors except clothing stores increased over the month, with food stores such as supermarkets contributing most to the increase.
More broadly, sales volumes fell by 0.2% in the three months to January when compared with the previous three months, however this was the smallest fall since August 2023.
Silvia Rindone, EY UK&I retail lead, comments: “January traditionally poses challenges for retailers as consumer budgets are stretched following the festive period, however after a record fall of 3.3% in December 2023, retail sales volumes rebounded by 3.4% in January, showing signs of a potential return to growth in 2024.
“This growth was led by food stores, which saw growth of 3.4%. There was sales volume growth in all subsectors apart from clothing and footwear which saw a 1.4% fall in monthly sales volumes. This is largely due to the changing role of the January sales; shoppers no longer queue in the early hours to find a bargain with retailers instead focussing their attention on key promotional dates during the ‘Golden Quarter’ such as Black Friday and Cyber Monday and discounting far earlier in the season. As a result, many shoppers cut back on discretionary spend at the start of the year.
“While shop price inflation fell to its lowest in two years and food inflation dropped for the ninth consecutive month, consumers are yet to feel the benefit. Rising gas and electricity prices as well as the wet weather means many shoppers are still to be convinced to return to the high street.
“Online spending values fell by 4.1% in January with volumes expected to remain flat throughout 2024 following a number of years of growth during the COVID pandemic. Online retailers are now facing similar challenges as physical stores. Businesses which operate on both models must look to adapt their omnichannel offerings to complement each other seamlessly.
“After a prolonged period of economic stagnation, the EY ITEM Club Winter Forecast anticipates consumer spending to rise to 0.9% in 2024, up from 0.7% as projected last year. With the 2024 Spring Budget on the horizon, retailers and consumers alike will be looking to the Chancellor to cut income tax and increase take-home pay for workers without adding additional cost burdens.
“During difficult times, retailers should continue to focus on getting the basics right whilst also adopting a growth and customer-focused mindset if they want to take advantage of potential growth later in the year. Promoting the right value proposition remains equally as important for brands and private labels as pricing remains the most influential decision driver for consumers.”
Oliver Vernon-Harcourt, head of retail at Deloitte, said: “The retail sector managed to shelter from the storms in January, as sales volumes rose more than expected in the first month of the year. This rebound is the largest monthly rise since April 2021 – a significant boost after a disappointing end to 2023. With inflation easing and consumer confidence continuing to rise, expectations are that the Bank of England may cut interest rates in the coming months, providing a further boost to spending power.
“However, with confirmation that the UK economy has now entered a recession, optimism from both consumers and retailers will likely remain tempered. We have seen over recent months that consumer sentiment has decoupled from spending, with many of those feeling more positive, still shopping with restraint.
“For many retailers, the focus will continue to be on getting the basics right: providing real value for money, creating great experiences both in-store and online, and offering a diverse range of innovative products. Stock availability and spring product launches will also require ongoing focus, as global shipping continues to be impacted by events in the Red Sea. Equally, retailers will need to keep one eye on the longer term to make sure they are ready for a potential improvement in consumer spending in the second half of 2024.”
Samantha Phillips, partner at McKinsey & Company, comments: “Retailers bagged the boost they were hoping for in January, after a disappointing December. The 3.4% monthly volume rise, coupled with a 3.9% value uplift was likely driven by heavy January sales activity. This uptick should be accepted cautiously, as we are likely to still experience a year of ups and downs.
“The only sector not to see a bounce-back was clothing and footwear, which declined 1.4 % compared to December last year. Sales likely being impacted by mild weather – reducing the need for a new winter wardrobe.
“Overall volume sales increased 0.7% year on year. This is an uplift on last January’s highly uncertain environment, partially reflecting the effects of the slowing inflationary environment.
“However, household budgets will remain under pressure and discerning consumers will remain mindful about where they hold back spending and where they splurge. Retailers may have to find new ways to appeal to consumers in a recessionary environment. With tactical cost-savings mostly exhausted, they will likely focus on share growth, whilst looking at fundamental business model shifts such as gen AI opportunities and data and loyalty programmes.
Stuart Chalmers, retail industry lead, Accenture UK & Ireland, said: “Retailers will be pleased to see this boost at the start of the year, in a week that brought the unwelcome news that the UK has entered a technical recession. Sales rose in most subsectors, with food stores and supermarkets contributing most, but clothing retailers will be disappointed to see a drop in numbers.
“January’s retail performance will offer hope to a beleaguered sector after a challenging ‘golden quarter’. With inflation continuing to hold steady, retailers should be using data to better understand what customers want, and when they want it. This approach can help to inform their broader strategy, including in their supply chains, through to in-store experiences.”