A look back at Q2 2024
 

After varying month by month across the quarter, retail sales were broadly flat in Q2. Retail sales volumes fell by 0.1% in Q2 2024, when compared with Q1, and fell by 0.2%, when compared with the same period a year ago. April’s retail sales (-1.5%) were more disappointing than expected, with Easter falling in March this year and the unseasonably wet weather deterring shoppers from the high street impacting the sale of seasonal items. However, retail sales value and volume rebounded in May (+2.9%) as the combination of two bank holidays, better weather and increased promotional activity supported improved footfall. Retailers would have hoped May’s positive performance to continue into June but despite the kick off of the Euro championships boosting sales in some categories, with sales of TVs up ahead of the tournament, the cooler weather than average and the pre-election uncertainty deterred consumers from spending. Overall seasonal and weather dependent items such as clothing and outdoor related products such as DIY and gardening continue to be the worst affected, and a traditionally unpredictable British summertime combined with high interest rates have continued to disrupt sales in these categories.¹

Consumers expanding their shopping channels
 

Falling inflation has given consumers more freedom to shop a wider range of products and across different formats without worrying about price and affordability as much as during the recent period of inflation. This may – in part – account for the rise in the use of convenience stores from 8.9% in Q1 to 10.3% in Q2 2024 as the channel for their main grocery shop. Convenience shops are often more expensive than larger supermarkets, but have seen an uptick in fortunes across the last three quarters as some consumers shift away from prioritising value over other elements.

The latest ONS data reported that online sales fell by 2.7% between May and June 2024 with the proportion of sales made online decreasing in the month and representing 27.1% of all retail sales in June 2024. 

Since online retail boomed during COVID, there has been a rebalancing of the online and in-store channels with online sales plateauing at around 26% over the last two years. That has left retailers questioning which channel will be more profitable and where to prioritise their investment. Online shopping remains an important part of many retailers' growth strategies despite the slow progress made around improving its profitability. 

The growth of online spending also risks creating another challenge for retailers based around their share of consumers’ wallets. According to Deloitte research that analysed the reported monthly spending of over 100,000 consumers in 13 countries, digital goods and services now represent an estimated 2.7% of a consumer’s total wallet compared with more established categories such as clothing (3.9%) and electronics (3.5%).²

The increasing importance of digital goods and services to consumers – especially younger consumers – has implications for a broad range of consumer businesses, including retailers. The consumer’s wallet is a zero-sum game, so growth in digital spending will likely come at the expense of traditional spending (or saving) elsewhere.
 

Impact of the general election on the retail sector
 

The new government will face calls from the retail industry to offer more support to businesses, employees and consumers. A proactive approach to supporting the retail sector is important given that the sector remains a vital component of the UK economy. Most notably, the sector’s economic output reached £112.8 billion in 2023, accounting for 4.9% of the UK's total economic output. In addition to this, retail is one of the country’s largest employers. In 2022, the retail sector employed approximately 3.05 million people, accounting for close to 10% of all jobs in the British economy. Employment in the retail sector is evenly distributed across various regions and countries of the UK, underlining its widespread impact on local economies and making it a key issue for constituents and therefore their Members of Parliament across the country.³

Based on their election manifesto, a new Labour government will likely result in a number of policy changes which will directly impact the retail sector.⁴ For example, the proposed cap on corporation tax at 25% for the entire parliamentary term is aimed at providing stability and certainty for businesses, including those in the retail industry. Additionally, the replacement of business rates in England with a revenue-neutral system could be implemented which will support high street retailers, removing a burden that their online competitors do not have. Furthermore, Labour's plan for small businesses, including action on late payments, improved guidance for exporting and reform of the British Business Bank, demonstrates a commitment to supporting the growth and resilience of small and medium-sized enterprises (SMEs) within the retail sector. This will be particularly important, given that as of 2023, there were 402,900 retail businesses in the UK, representing around 6% of all businesses. SMEs comprised over 99% of these retail businesses, reflecting the sector's substantial contribution to entrepreneurship and local economic development.⁵

Retail workers will also likely benefit from new policies. For example, there are plans to address rising retail crime rates, including introducing a new specific offence for assaults on shopworkers that will protect them from threats and violence. In their manifesto, Labour also signalled that they would remove the national living wage age bands and change the remit of the Low Pay Commission so it accounts for the cost of living, both of which could benefit some retail workers. 
 

Outlook for Q3 2024
 

The outlook for retailers is a positive one. According to our data, improving financial conditions will support consumers’ intentions to spend more across discretionary categories. However, some consumers could remain cautious with prices remaining high by historical standards and overall purchasing power diminished by the long-term effect of the cost of living crisis. With consumers focussed on value, we could see a patchwork recovery in retail with some parts of the sector faring better than others. There could also be changes to where and how consumers shop across some product categories, with the UK’s major multiple grocers continuing to expand their general merchandise, electronics and fashion ranges. 

1.  UK's AO World sees further growth on TV, tumble drier demand | Reuters
2. Digital spending behavior | Deloitte Insights
3. Retail in Numbers (brc.org.uk)
4. Change – The Labour Party
5. Retail in Numbers (brc.org.uk)