Retail sales remain depressed, but decline expected to ease

Retail sales volumes remained deeply depressed in the year to May, according to the CBI’s latest monthly Distributive Trades Survey. The pace of decline slowed a little compared with April (when retailers reported the joint-fastest drop since the start of the survey in 1983). And volumes are expected to fall at a slightly slower – but still historically fast — pace next month.

The survey of 87 retailers found that orders placed with suppliers fell at a near-record pace in May. Stock levels in relation to expected sales rose to their highest balance since October 2019, prior to the Brexit deadline that month.

Our special COVID-19 questions suggest that supply disruptions have worsened since April, with a greater share of retailers now reporting shortages of some goods (58%), increased cost pressures (64%), shipping delays (44%) and capacity constraints (60%).

Financial pressures also remain tight. Four-fifths (80%) of retailers reported cash-flow difficulties (though this was down from 96% in April).

Over half of retailers (53%) now report temporarily laying off staff, up from April, whilst the number reporting permanent layoffs was unchanged (8%).

Rain Newton-Smith, CBI Chief Economist, said:

“The retail sector is at the sharp end of a crisis, with many businesses up against it. The government’s support packages are making a real difference, with more shops reporting that jobs have been furloughed, rather than lost. The furlough system will need to adapt as more businesses open their doors in the months ahead.

“As we gradually reopen the economy, retailers may yet need more support from the government if demand falters. Ensuring safety in the workplace remains the top priority, as more firms look to bring staff back to work. Many challenges remain in managing supply chains and costs in a tough environment.”

The DTS for May includes the first post-lockdown set of quarterly questions, providing additional insight into broader trends in the retail sector.

These show that optimism about the general business situation in the coming three months fell at the fastest pace since the 2008 financial crisis.

Retailers reported that prices were broadly flat in the year to May, the lowest balance since August 2016. (Year-on-year online prices fell for the first time in survey history last month and continued to decline in May.) Average selling prices are expected to rise slightly in the year to June.

Retailers also reported the sharpest fall in import penetration in survey history, likely reflecting disruption to global supply chains.

Employment growth fell at the fastest pace in ten years in the year to May, driven primarily by lower full-time employment. Headcount is expected to decline at a similar pace next month. Investment intentions for the year ahead also fell sharply.

Key findings Figures are balance statistics unless otherwise stated.

Retail

• Retail sales volumes continued to fall sharply in the year to May, but at a slightly slower pace than in April (balance of -50%, from -55%)
• The slight easing of the decline was largely driven by a return to growth in the grocery sector (+16%, from -27%).
• Orders placed on suppliers fell at a quicker pace than April (-56%, from -48%).
• Growth in internet sales volumes picked up (+27%, from +8%) and is expected to remain similar in June (+27%).
• Stock levels in relation to expected sales rose to their highest since October (+45%, from +36%).
• Retailers reported prices as being broadly flat in the year to May (+3%, from +51% in February). This was the lowest balance since August 2016. Expectations for price growth over the year ahead were the weakest since November 2015 (+7%, from +62%)

Wholesalers and motor traders also in midst of sharp contraction

• Wholesale sales volumes fell at a sharper pace than last month (-73%, from -68%), while motor traders reported a slightly slower pace of decline in the year to May (-77%, from -100%).
• Orders placed by wholesalers fell at the quickest pace since the survey started in 1983 (-75%, from -64%) and continued to fall sharply in the motor trades sector (-81%, from -100%).

Investment intentions for the distribution sector as a whole fell at their fastest pace in survey history

• Investment intentions for the year ahead (next 12 months, compared to previous 12 months) fell at their fastest pace since the survey began in 1983 (-69% from +8% in February). This represented a survey low for wholesalers (-78% from -3%) and historically weak results for retail (-55% from +26%) and motor trades (-84% from -14%).
• Employment fell at the sharpest pace in ten years in the 12 months to May (-33%, from -23%). This was driven by lower full-time employment (-37%, from -18%) while part-time employment fell at the same rate as in February (-21%).

Additional questions asked in relation to COVID-19 revealed that (figures are percentage of respondents, weighted):

• 65% of retailers reported that coronavirus has had a “significantly negative” impact on their sales, broadly similar to April (67%).
• 47% of retailers were in a state of complete shutdown in the UK, up from 39% in April.
• 64% reported increased cost pressures (up from 47%), 60% noted capacity constraints (up from 46%) and 44% noted a hit to productivity (up from 37%).
• 53% reported temporary layoffs (from 44%) and 8% noted permanent staff layoffs (from 8%).
• 80% noted cash flow difficulties (from 96%), 40% experienced constraints to the availability of external finance (from 31%) and 26% reported difficulties in meeting tax obligations (down from 40%).