Britons loosen January pursestrings, fashion benefits but did margins suffer?

By

Sandra Halliday

Published
Feb 7, 2020

Some clarity on Brexit and ongoing discounting seem to have combined to make consumers feel better about shopping last month. A regular monthly report showed that like-for-like sales in physical stores grew as much as 5.7% during January and fashion rose even faster.

The news came from BDO’s High Street Sales Tracker (HSST) that also showed a strong performance across all sectors with all of the three categories that it covers – lifestyle, fashion and homewares – increasing for the first time in two years.

But before we get carried away with ourselves, BDO is also warning retailers that if this is a recovery, it's still an early one and with the environment out there being quite unpredictable it remains to be seen whether a meaningful boost to physical stores will continue for the rest of the year. That's especially the case as economic conditions are still potentially set to deteriorate during this year on the back of issues both inside and outside the UK, while the shift to online shopping goes on.

But at least January provided some reason to be cheerful. That 5.7% increase was so very much better than the 0.2% decrease in January 2019.

It's encouraging that the fashion sector managed to rise slightly faster than the overall retail sector with its 5.8% increase in January ending a two month run of sales losses. Meanwhile homewares increased 8.9% in physical shops, which was the best result for this category since 2011. The lifestyle sector rose 5.1%.

And relative strength in physical spaces didn't mean that online retailers suffered. Non-store sales grew 18.8%. Given that they rose 19.1% a year earlier, it's clear that growth here is continuing at a fast pace.

Staying cautious however, Sophie Michael, National Head of Retail and Wholesale at BDO, said: “Despite January being the best month in six years, this may be a false dawn in terms of a high street recovery”.

Her caution was understandable, especially as January is a month in which markdowns rule in retail stores and it's unclear just how much retailers had to discount their products in order to get consumers to buy. That could mean bad news when it comes to reporting profits further down the line. And let's not forget that many consumers still won't yet have returned goods that ultimately will be sent back or taken back to shops.

“Whilst like-for-like sales may be positive, other reports show that stock levels of retailers are high and buying orders have again fallen, which suggests that discounting once again is driving sales,” Michael said. “Delaying a return to full pricing will ultimately impact on already paper-thin margins. With returns also unaccounted for, the true picture of January has yet to emerge.

“Bargain-hungry shoppers are continuing to acclimatise to increasingly lengthy sales periods, which stores are responding to with discounting still visible on the high street. February will show whether consumer confidence has got a toehold in some kind of recovery for retail.”