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UK Retail Sales Might Still Be Strong, But Growth is Slowing

The British Retail Consortium (BRC) is seeing signs of slowing growth, even as July retail sales remain strong.

Retail sales covering the four week from July 4-31 rose 6.4 percent, versus an uptick of 3.2 percent in July 2020. The gain is still below both the three-month average growth rate of 14.7 percent and the 12-month average growth of 10.4 percent. On a two-year basis, using 2019’s pre-pandemic period as a gauge of comparable growth, total retail sales rose 9.1 percent.

“July continued to see strong sales, although growth has started to slow. The lifting of restrictions did not bring the anticipated in-store boost, with the wet weather leaving consumers reluctant to visit shopping destinations,” Helen Dickinson OBE, BRC’s CEO, said. “Online sales remained strong, and with weddings and other social events back on for the summer calendar, formalwear and beauty all began to see notable improvement, so fashion outlets in particular saw a bounce back to pre-pandemic levels.”

Dickinson also noted that as people prepared to return to the workplace, they made fewer purchases of home office equipment after months of high sales. Other homeware items, such as furniture and household appliances, continued to do well.

“However, the vacancy rate is continuing to rise. Many shops and local communities have been battered by the pandemic, with many high streets in need of further investment,” Dickinson said. “Unfortunately, the current broken business rates system continues to hold back retailers, hindering vital investment into retail innovation and the blended physical-digital retail offering. The Government must ensure the upcoming business rates review permanently reduces the cost burden to sustainable levels. Retailers want to play their part in building back a better future for local communities, and Government must give them the tools to do so.”

Dickinson isn’t the only one who thinks U.K.’s business rates system is in need of adjustment. Last week, when Frasers Group posted full year results for the year ended April 25, 2021, chairman David Daly said  the company would consider taking on some former Debenhams stores, but only if the government provided a “new and appropriate policy on business rates.” Daly criticized current rates as “excessive” and even said that the outdated system could potentially jeopardize some House of Fraser locations.

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Paul Martin, U.K. head of retail at KPMG, said retail sales grew at a slower rate following the reopening of the hospitality and leisure sectors, which “led to a dilution in consumer spending” as consumers shifted some purchases to food and drink categories.

High street sales rose 6 percent in July, which led to 0.4 percent decline in online sales when compared to July 2020. “Both women’s and men’s clothing continued their revival with strong growth in-store and online,” Martin said.

He expects that over the coming months, the health of the sector is expected to grow at a “much slower rate” as retailers face pressures from different fronts that include staffing pressures, increases in component costs and rising inflation impacting household spending power. All those challenges could stall consumer confidence, leading to a slowdown in retail sales heading into autumn, he said.