Retail sales volumes are estimated to have fallen by 1.0% in December 2022, following a fall of 0.5% in November (revised from a fall of 0.4%), according to the Office for National Statistics (ONS).
Sales volumes were 1.7% below their pre-coronavirus (COVID-19) February levels.
Non-food stores sales volumes fell by 2.1% over the month, with continued feedback from retailers and other wider evidence that consumers are cutting back on spending because of increased prices and affordability concerns.
Food store sales volumes fell by 0.3% in December 2022 from a rise of 1.0% in November, with comments from some retailers suggesting that customers stocked up early for Christmas.
The proportion of online sales fell to 25.4% in December 2022 from 25.9% in November, with anecdotal evidence that Royal Mail strikes led to consumers shopping in stores more.
Between 2021 and 2022, retail sales volumes fell by 3.0%, as the lifting of restrictions on hospitality led to a return to eating out, and rising prices and the cost of living affected sales volumes.
Lynda Petherick, head of retail at Accenture in the UK & Ireland, said: “Retailers will be disappointed by December’s figures, after what has historically been a bumper month for the sector. Despite shoppers wanting to enjoy the first festive season free of COVID-19 restrictions in three years, spiralling costs and weather, travel, and delivery disruption in the run up to Christmas have resulted in an uninspiring month of sales.
“Despite these challenges, retailers will need to put a disappointing December behind them and focus on January as a fresh start. Brands did well to ensure their stock availability, customer experience, and good value products encouraged people to shop with them over the festive period, and this needs to continue in 2023.
“As we’re in the season of new resolutions that will see shoppers reducing their consumption from a health, financial and environmental perspective, retailers would do well to make sure they’re making this lifestyle as easy as possible for consumers. Giving a good shopping experience through a combination of cost-effective product bundles, meal ideas, or broader education around shopping economically and sustainably, will encourage shoppers to spend with them in the long term.”
Hugh Fletcher, global marketing director and thought leadership lead at Wunderman Thompson Commerce, said: “Despite November’s better-than-expected results, December’s dip in sales comes despite the busy Christmas and sales period. This will no doubt come as a disappointment for retailers hoping for a reprieve after a difficult year. It underlines the magnitude of the challenges that businesses will be up against in 2023, and it’s essential that they prepare proactively and swiftly.
“So what next for businesses facing a worrying 2023? Implementing an omnichannel strategy will be as important as ever, and businesses that can seamlessly incorporate marketplaces, physical stores, brand sites and social commerce into their offerings will see the biggest dividends. Another differentiating factor going forward will be service. While price plays a key role in decision-making, the service being offered by retailers when it comes to availability, deliveries and returns is becoming increasingly important, and in many cases more so than the retailer being shopped from, or the brand being bought.
“While November’s figures showed that sales and discounts continue to be effective, December’s figures underline that there is a limit to consumer spending. So businesses need to strike a balance between offering customers great value without compromising wider sales goals. Retailers must also be aware of the sting in the tail of returns: with 24% of everything ordered online being returned, figures for January may be impacted even more.
“And it’s likely that retailers will be fighting for a share of a decreasing amount of spend, certainly in Q1. Those retailers that fail to offer consumers an omni-channel and seamless shopping experience – at the right price – alongside the service that consumers are now demanding, will quickly be left behind by competitors.”
Silvia Rindone, EY UK&I retail lead, said: “Despite indications that consumers might be delaying their Christmas shopping and many stores starting their January sales earlier to entice shoppers, retail sales volumes fell by 1% in December, traditionally the busiest time of year for many retailers. Food store sales volumes also saw a slight dip as consumers stocked up early for Christmas.
“The ongoing rail strikes and cold snap last month led many consumers to do their Christmas shopping in-store rather than online, with many potentially keen to avoid the disruption caused by postal strikes in the lead up to the festive season. As a result, there was a 2.9% fall in online spending values with the proportion of online sales falling to 25.4% in December from 25.9% in November.
“Trading updates from retailers over the last few weeks have shown that most – particularly the big four supermarkets – performed better than expected and experienced a strong festive peak in sales terms, although it’s worth noting that sales growth has been driven by customers spending more due to inflation rather than buying more.
“Many consumers also dipped into savings to ensure they had a memorable Christmas – the first restriction free one since the start of the pandemic. However, now that Christmas is over, consumers will be tightening household budgets and heading into 2023 with less of a financial buffer. Discretionary spending is most likely to be affected in 2023, with EY’s latest Future Consumer Index finding that over half (52%) of consumers surveyed said they will spend less on big-ticket items such as furniture, while 47% say they will spend less on clothing.
“In this challenging trading environment, retailers will need to ensure they are providing customers what they want, or risk losing favour altogether as we saw in the 2008 recession. As budgets become more strained, retailers will need to offer a compelling reason for customers to part with their hard-earned cash – whether that be a strong value proposition or by offering a unique in-store shopping experience.”
Cande Cooper, UK retail consulting lead at Deloitte, said: “December’s festive period wasn’t enough to boost retail sales as volumes fell by 1.0%, an unexpected deterioration. This marks two consecutive months of retail sales decline in the ‘Golden Quarter’.
“While there were some winners in the grocery sector, food sales volumes fell 0.3%, with many consumers managing reduced budgets. Price sensitive consumers still made use of the pre- and post-Christmas discounting period by picking up items in the sale, however non-food sales took a significant hit with sales falling by 2.1%.
“The outlook for the next 12 months remains difficult for both consumers and retailers. While inflation is beyond its expected peak, it will still be one of the drivers behind retail sales value growth, with costs ultimately being passed on to consumers that could negatively impact demand.
“Many consumers will continue to adopt recessionary behaviours in 2023, including trading down, switching to cheaper stores, repairing or fixing items, and cutting back on non-essential purchases, especially those requiring financing which will be impacted by high interest rates.
“Retailers are navigating an uncertain environment as they continue to manage costs down while simultaneously trying to grow revenues. Those who continue to offer good value and innovative products, coupled with quality customer experience will be most likely to succeed. Personalised and dynamic consumer loyalty schemes will also play a part to attract and retain shoppers on a budget.”