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Retailers Are Struggling to Attract Consumers in UK: Gadfly

By Steve Wynne-Jones
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Retailers Are Struggling to Attract Consumers in UK: Gadfly

Britons haven't had it this good for years. But you wouldn't know it from the country's retailers.

Household disposable income is rising.

After housing costs, bills and paying for essential items such as food, the average household has about £17 ($24) a week more left to spend than in the year-earlier period, according to research by retailer Asda and the Centre for Economics and Business Research.

Shoppers are in a sweet spot – there's practically no inflation, and wages have started to rise more quickly.

The big price decline for consumers has been petrol, where drivers are paying less than a pound a litre for fuel. That's the least since August 2009, and has been helped by fierce competition between supermarkets, according to the AA.

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Meanwhile, as the chart below shows, food is getting cheaper as German no-frills grocers Aldi and Lidl spark a price war between supermarkets. Clothing has become cheaper, in part because the unseasonably warm autumn forced retailers to slash prices to clear their stock of coats and sweaters.

But consumers aren't spending their extra income in the shops. Government statistics showed on Friday that the volume of sales, including fuel, tumbled 1 percent in December, the steepest decline since September 2014. The value of goods sold also fell 1 per cent from the year-earlier period.

Retailers had a miserable December, with Marks & Spencer posting a decline in clothing sales, Next reporting sales that missed analyst estimates, and Sports Direct warning profit will be lower than expected.

That's in part because there hasn't been a distinctive fashion trend to encourage people to change their wardrobes. An attempt to persuade customers to buy into the 1970s look (think suede, flared jeans and patterned blouses) fizzled out – mercifully.

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Furniture retailers and home improvement chains face a deeper problem. Steve Howard, head of sustainability at Ikea, reckons the appetite among western consumers for home furnishings has peaked. Customers already have many similar products, he told a Guardian conference last week.

Experiences – holidays and meals out - have enjoyed a boom, hence private equity firms have been snapping up casual dining chains such as Pizza Express, Prezzo and Cote. But there are signs even this market is suffering indigestion: British households' monthly spending on eating out fell in November, according to Greene King's leisure index.

The one bright spot appears to be technology – Dixons Carphone, which reports Christmas sales on Tuesday, is expected to have been one of the winners over the holiday season, helped by sales of iPhones, flatscreen TVs and coffee machines.

Still, if spending is so anemic when conditions are so good, it doesn't bode well in the event of a shock. Bank of England Governor Mark Carney signaled last week that a rise in interest rates is still some way off. But recent stock market turmoil could rattle consumers, particularly older shoppers with invested savings. If this was the high-point for consumers, retailers need to be concerned.

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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