Retailers enjoyed a fourth consecutive month of growth in August with sales volumes and sales values up 0.8% and 0.7% respectively compared to July. That marked the fourth successive monthly gain, although growth has unsurprisingly slowed from the rapid rebounds witnessed in July, June and May.

Despite the strong consumer spending rebound in the third quarter to date, there is also considerable uncertainty as to how willing and able consumers will be to spend going forward.

Shoppers will soon start stocking up on autumn and winter essentials, which may give spending a boost, although spikes in Covid-19 cases in the coming weeks would only magnify shopper caution. Many people have already lost their jobs during the pandemic, and unemployment will rise significantly once the furlough scheme ends.

ABOVE FEBRUARY’S LEVEL

According to the latest retail sales data published by the Office for National Statistics (ONS), sales volumes were up 2.8% year-on-year in August and 4% above February’s level before the sector was put into deep-freeze by the lockdown.

The retail sector started to open up in mid-May when garden centres and homewares shops were allowed to open in England from the middle of the month, while non-essential retailers were allowed to re-open from mid-June.

Adapting to the new reality of social distancing, PPE and contact tracing, the sector  posted another solid month of sales growth in August, during which spending on home improvement categories continued to rise in a likely boon for the likes of B&Q-owner Kingfisher (KGF), DFS Furniture (DFS) and homewares market leader Dunelm (DNLM).

The eating out trade was lifted in August by the ‘Eat Out to Help Out’ scheme, while the ONS data show online sales remain significantly higher than they were before the pandemic. Unsurprisingly, the opening up of the retail sector has led to a fall back in online sales’ share of total sales from the record high seen in May.

DEVIL’S IN THE DETAIL

As Jon Hudson, manager of the Premier UK Growth Fund (3163922), pointed out: ‘The headline growth rate is encouraging but as always the devil is in the detail. Online retailers continue to benefit, seeing sales up 47% from pre-pandemic levels. This continues to come at the expense of bricks and mortar stores, although there was one bright area with DIY and homeware stores benefitting from more people spending time at home.’

Howard Archer, chief economic advisor to the EY Item Club, added: ‘While the opening up of the retail sector has led to some decline in online sales’ share of total sales from the record high seen in May, they remain significantly above the levels seen before the impact of Covid-19 was felt, and the suspicion is that there will have been some permanent shift to online sales.’

The EY ITEM Club predicts that consumer spending will be constrained after the third quarter by cautious consumers and markedly higher unemployment.

Archer stressed ‘there is considerable uncertainty as to just how willing and able consumers will be to spend beyond the third quarter. Indeed, persistent consumer caution is seen as a significant risk that could limit the UK recovery.’

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Issue Date: 18 Sep 2020