Retail sales volumes are estimated to have fallen by 3.2% in December 2023, from a rise of 1.4% in November 2023 (revised up from an increase of 1.3%); December’s decrease was the largest monthly fall since January 2021, when coronavirus (COVID-19) restrictions affected sales, the latest figures from the Office for National Statistics (ONS) reveal.
Looking at the quarterly picture, sales volumes fell by 0.9% in the three months to December 2023 when compared with the previous three months.
Non-food store sales volumes fell by 3.9% in December 2023, following a 2.7% increase in November 2023 when earlier Black Friday sales, and wider discounting, increased sales.
Food store sales volumes fell by 3.1% in December 2023, from an increase of 1.1% in November 2023.
Non-store retailing (predominantly online retailers) sales volumes fell by 2.1% in December 2023, following a fall of 1.1% in November 2023.
Automotive fuel sales volumes fell by 1.9% in December 2023, following a rise of 0.8% in November 2023.
On an annual basis, sales volumes fell by 2.8% in 2023 and were their lowest level since 2018.
Samantha Phillips, Partner at McKinsey & Company comments: “Retail sales continue to reflect low consumer confidence. December brought a poor end to the golden quarter with volumes down 3.2% on the previous year. This will be a disappointment to many retailers after a small boost in November (1.3%) left a glimmer of hope after an otherwise difficult year.
“This could have been driven by cautious consumers shopping smarter across Q4. Our research in November 2023 showed 40% of shoppers were planning to do most of their holiday shopping on or around Black Friday (versus only 9% last year) with 60% focused on finding the best price and promotions.
“Customers held back on splurging on presents and gifts, showing up in department stores which were particularly hard-hit with sales volumes down 7.1%. And non-food retail sales, which includes typical gift categories such as sport, toys and jewellery, fell by 4.5%.”
“Even food saw similar trends, with the uptick in November dropping to -3.1% – likely due to the combined pull forward of big-ticket holiday items, and continued value seeking in everyday shopping.
“December closes an overall difficult year for UK consumers, where continued high inflation maintained uncertainty in H1 and led to an overall plateau in confidence by H2 as shoppers baked-in new ways of making ends-meet -74% of shoppers in our research reported trading-down to manage the purse strings.
“With consumers likely to continue feeling the pinch from prices and eating into their savings, there aren’t many green shoots for retailers – the economy isn’t growing very fast and inflation hasn’t been conquered. Retailers will need to continue to be disciplined on value whilst differentiating to win footfall and discretionary spend.”
Phil Monkhouse, UK country manager at global financial services firm Ebury, commented: “The Grinch reared its head over the festive period to deliver an unsatisfactory Christmas for retailers.
“Households still reeling from the cost-of-living crisis and soaring mortgage rates decided against opening the purse strings this December and turned away from the usual Christmas splurge.
“Global general elections, recession fears and economic volatility stemming from market expectations of rate cuts are setting retailers up for a rocky 2024 so preparation and agility will be key.
“Utilising partners to help with ready finance to build up stock levels or to counteract sharp FX movements look to be crucial ahead of an uncertain year.”
Silvia Rindone, EY UK&I retail lead comments: “2023 ended with another slow month for UK retail sales as consumer confidence continued to impact spending over the festive season.
“Retail sales volumes fell by 3.2% in December, the largest monthly fall since January 2021. Black Friday and post-Christmas sales failed to have the desired impact as non-food sales volumes fell by 3.9% whilst food sales volumes saw a decrease of 3.1%, following an increase in November.
“This data echoes the findings of the latest EY Future Consumer Index, which found that consumers would not be spending as much this year. Ongoing concerns about high energy, heating and mortgage costs dampened retail sales in December and will continue to do so in 2024. In Q4 2023, the so called ‘Golden Quarter’, saw similar spending patterns as the previous year, with consumers treating themselves to good food to celebrate with family – while cutting down discretionary spend on other goods.
“Although Christmas 2023 may not have yielded the sales retailers were hoping for, there are reasons to be optimistic as we enter 2024. Real wages are set to grow again as inflation continues to fall, energy prices remain stable and interest rates are likely to have peaked for the time being, all of which could lead to increased consumer spending. Non-food retailers who have taken the time to understand their customers’ priorities and evolve their proposition are reaping the benefits and standing out from the crowd. This is not an easy process and many retailers are still struggling. Retailers need to invest time in understanding the needs and wants of consumers or risk losing consumer confidence.”
Matt Jeffers, retail strategy and consulting managing director for Accenture in the UK & Ireland, said: “At such a crucial time of the year for retailers, December’s drop in sales caps off another challenging year for the sector, as combination of bad weather and tightened spending hampered festive sales. Many people wrapped up their Christmas shopping in November this year, causing non-food spending to decline last month.
“Businesses will now be looking to atone for a disappointing end to 2023. While January may be a time where some consumers cut back, others will be embarking on new year’s resolutions, which presents opportunities across some retail verticals and categories. Adapting quickly to shifting demands will help businesses to start the year strong, while being ever mindful of the external economic pressures. Affordability and quality will continue to be key as we head into 2024.”
Deann Evans, managing director, EMEA, at global commerce platform, Shopify commented: “As the holiday shopping season draws to a close, the latest sales figures will have disappointed retailers, after the rise in November’s figures had lifted their spirits. According to Shopify’s data, we did see an effort from customers to tactically save for the festive period, as over half (53%) of UK shoppers put aside more money each month than they have in previous years, but ongoing financial pressures restricted December’s spending figures.”
“This may be because half (50%) of UK shoppers planned on doing the majority of their holiday shopping during the Black Friday, Cyber Monday (BFCM) sales, according to our data. With the ONS’ November sales figures showing a greater-than-expected increase, many consumers seemed to have allocated their budgets for the BFCM promotions, to get more for their money — reducing their December spending accordingly.”
Oliver Vernon-Harcourt, head of retail at Deloitte, said: “December’s retail sales results are well below what retailers would have been expecting in what is typically the biggest shopping month of the year. This significant drop sees sales fall to the lowest level since January 2021, which will be a significant blow to retailers across all categories. This paints a challenging picture for retail in the near future, in a sign that cautious consumers are feeling the long-term effects of a strain on their spending power.
“2024 may be a tale of two halves, with mortgage rates set to rise further and inflation continuing to fluctuate. The first half of the year will remain challenging for consumers, whose spending is hindered by rising rates and economic uncertainty. However, the second half could be a more positive story, with the impacts of wage increases, reduced national insurance and falling inflation felt more widely by consumers.
“Despite this varied outlook, retailers will want to capitalise on improving consumer confidence, with many looking to attract customers by investing in hybrid experiences
Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, comments: “After a slight uptick in November, we’ve seen the biggest fall this year in December, marking a shocking end to the Golden Quarter. Black Friday tempted some consumers to bring forward their spending to November, but ongoing cost-of-living pressures meant most households cut back across all retail categories. This meant retailers were forced to prolong their heavy discounting into December to shift stock which will have been a big hit to margins.
“Last year was a challenge for retailers and sadly this looks set to continue into 2024. Despite consumer confidence increasing and real wages rising, inflation had a slight setback in December showing just how fragile the economy is. As a whole, things are slowly improving but consumers probably won’t start to feel like they have more money in their pocket until the summer. After a challenging year, another six months of tough trading could be too long for some retailers.
“To compound the problem and hit retailers when they’re down, disruption from events in the Red Sea, and the possibility of cost increases and supply delays could be another headwind they have to navigate this year. This could be particularly damaging for fast fashion that relies on speed to deliver the latest trends at the right price.”
