December 2023 witnessed a surprising downturn in UK retail sales, sparking numerous questions and concerns among economists, retail analysts and business owners. The fall of 3.2% was the biggest since the UK was locked down during the Covid pandemic.
A closer look at December's dip
To grasp the full picture of the decline, it's crucial to consider the broader economic and social landscape of December 2023. This period was marked by a complex interplay of economic pressures, evolving consumer behaviours, and significant shifts in the retail industry.
Economic factors influencing the retail sales decline
The surge in inflation rates during late 2023 significantly impacted consumer purchasing power. With higher living costs, discretionary spending took a hit, as households prioritised essential expenses over retail indulgences. Despite several consecutive monthly falls in inflation, there was a surprise rise to 4.0% in December, prompting a fall of 1.5% on the FTSE when announced by the ONS.
The Bank of England's response to inflation, primarily through adjusting interest rates, further influenced consumer spending. Higher interest rates led to increased borrowing costs, discouraging spending and investments. It’s likely that rates may not fall as fast as some had predicted in 2024 following December’s numbers.
Consumer behaviour and market trends
While high inflation undoubtably contributed towards retailers suffering the worst decline in sales in nearly two years in the run-up toChristmas, there are several other factors to consider. One is the impact ofBlack Friday sales which shifted traditional Christmas spending into November. BritishRetail Consortium chief executive Helen Dickinson OBE told Retail Gazette last month:
“Black Friday began earlier this year as many retailers tried to give sales a much-needed boost in November. While this had the desired effect initially, the momentum failed to hold throughout the month, as many households held back on Christmas spending.”
This was evidenced by a 2.7% increase in retail spending inNovember as competitive pricing led many households to buy Christmas giftsearlier than usual.
Sector-specific Impacts
Certain sectors, such as luxury goods and electronics, experienced more pronounced declines due to their reliance on discretionary spending. Paul Martin, UK Head of Retail, KPMG, said:
“Christmas shoppers ditched clothing, jewellery and technology gifts, opting for beauty, health and personal care products, which, along with food and drink drove festive sales this year. Online sales remained in negative territory, although the decline was weaker than seen in recent months with sales down nearly 1% on last year.
There was better news for food and drink businesses however, with food sales increasing 6.8%over the three months to December.
