Sunshine reveals mixed picture for retailers

Retail sales grew at a modest pace in the year to May, following a tricky start to 2018, according to the latest CBI Quarterly Distributive Trades Survey.

Sales volumes remained a little below average for the time of year to the same degree as in April, with a similar picture expected for June. Orders placed on suppliers were slightly up over the year to May, with similar growth expected next month.

Across the retail sector, growth in sales volumes was reported in grocers, hardware and DIY and non-store goods (i.e. internet and mail order). Sales fell in specialist food and drink, clothing, footwear and leather, furniture & carpets, recreational goods and other normal goods. Growth in internet sales volumes in the year to May was largely unchanged compared with April, but is expected to accelerate in June.

Employment in the sector declined for the sixth quarter in a row, though at the slowest pace in more than a year. Average selling price inflation quickened in the year to May compared with the year to February, with a similar rate of inflation expected in the year to June. Meanwhile, retailers expect to cut investment over the year ahead for the first time in a year, and expect the business situation to worsen over the next three months.

More broadly, momentum in the economy has remained subdued over the past year, as the squeeze on real pay has held back household spending, and businesses have been grappling with ongoing uncertainty over Brexit. A cold start to the year pushed down growth further in Q1, but activity is expected to recover in the second quarter and settle at a quarterly pace of GDP growth of 0.3-0.4%. The CBI’s next economic forecast is due in June.

Anna Leach, CBI Head of Economic Intelligence, said:

“A cold start to the year has added to the woes of retailers already facing the twin burdens of higher cost inflation and squeezed household incomes. So it’s good to see some modest growth returning to the high street after two months of falling sales. But there’s no let-up in inflation for shoppers as prices are still rising strongly.

“Although real wage growth is gradually rising, the pace is gradual, meaning that the squeeze on households from higher inflation and subdued wage growth will persist for some time yet.

“We hear increasingly from our consumer-facing members that they are addressing the pressure on profits through investing in automation and workforce efficiencies. “Sharing best practice, engaging staff and improving training opportunities are just a few examples of how retailers can increase their productivity, improving pay and living standards.”

Key findings

Retailers:

• 29% of respondents reported that sales volumes were up on a year ago in February, while 18% said they were down, giving a balance of +11%
• Retailers expect sales volumes to pick up next month (+18%), with 28% expecting them to rise and 11% to fall
• Sales were below the long-run average (-1%) for the time of year in May, with a balance of (-12%)
• The volume of orders placed upon suppliers was broadly flat in the year to May, with 29% of survey respondents reporting a rise and 24% reporting a fall, giving a balance of +5%.  Firms anticipate that orders growth will pick up slightly next month (+8%)
• Retailers expect their overall business situation to deteriorate slightly over the next three months (-8%)
• Investment intentions for the next 12 months compared with the last 12 months in May turned negative (-7%) following a positive reading in February (+16%)
• Average selling price inflation picked up in the year to May (+58%) relative to the previous quarter (+52%). Price growth is expected to remain similar in the year to June (+57%)
• Year-on-year growth in internet sales volumes (+35%) was little changed from last month (+36%), and is expected to quicken in June (+45%)
• Grocers reported strong sales volumes growth in the year to May (+66%), while robust growth was also reported in other sub sectors, such as hardware and DIY (+46%).
• However, this was offset by falling sales in specialist food and drink (-33%), clothing (-15%), furniture & carpets (-50%) and recreational goods (-50%)

Wholesalers:

45% of wholesalers reported sales volumes to be up on last year and 20% said they were down, giving a balance of +25%.

Motor traders:

46% of motor traders reported sales volumes to be up on last year and 32% said they were down, giving a balance of +13%.

The May 2018 CBI distributive trades survey was conducted between 26 April and 11 May, with 115 firms responding.