Update on the retail sector

The Deloitte Consumer Tracker Q1 2020

The Deloitte consumer confidence index hit a record low in the first quarter of 2020, as the impact of COVID-19 unfolded in the UK. The index fell nine percentage points compared to the previous three months, to -18 per cent – the lowest level since the Deloitte Consumer Tracker began in Q3 2011.

Our Tracker data on subdued spending corresponds to weak retail sales in the first quarter of 2020 reported by the ONS. The slight gain in consumer confidence we saw in early January did not translate into major gains for the retail sector, with heavy rainfall throughout February negatively impacting footfall. At the end of the quarter, the COVID-19 pandemic severely impacted sales, which declined year on year -3.9 per cent in value and -4.1 per cent in volume in March 2020 (excluding automotive fuel). These are the steepest yearly declines on record for the last ten years.

However, the outbreak led to a sharp split between food and non-food retailers. Food stores have seen value sales increase by 11.3 per cent year on year in March 2020, but are operationally challenged by the extremely high level of consumer demand. Meanwhile, non-food retailers are facing an indefinite period of store closures and slower sales, with a sharp year-on-year decline in value sales of -20.9 per cent.

With forced store closures during the lockdown, online spending peaked in March 2020, and it accounted for 22 per cent of all retail spending, up three percentage points month on month. This is the biggest monthly increase ever registered outside of the core online trading period of Black Friday, as amid the COVID-19 pandemic overall online sales increased 12.5 per cent year on year.

Such growth of the online channel surely reflects a sudden peak in online grocery shopping during the outbreak, with online sales of food items up 19.7 per cent from March 2019, but still only representing 5.7 per cent of total online sales. In fact, self-isolating and social distancing measures meant that more people relied on online channels to also access non-food items they were currently unable to purchase in-store. As such, online sales of non-food items in March 2020 grew 16.8 per cent year on year.

The COVID-19 crisis will further impact the already precarious financial situation of many in the sector, following an already difficult 2019 when many retailers went into administration and big department store sales continued to slow. Brand reputation could also be at stake, and there are likely to be clear winners and losers emerging from the crisis, and a drastically changed retail landscape.

Large supermarkets see marginal growth amid COVID-19 stockpiling

Grocery sales saw a short-term boost following the COVID-19 outbreak, with Nielsen data estimating that consumers made nearly 80 million extra grocery shopping trips in March, spending almost £2 billion more on groceries than in the same period of 2019. Grocers have been operationally challenged to adjust supply chains to manage unprecedented demand peaks and a faster-than-expected shift to online.

Amid all this, consumers’ grocery channel preferences remained largely unchanged since last quarter, and fairly stable year on year. However, large supermarkets saw marginal growth, bucking the trend that has seen their position increasingly eroded by discounters. This likely reflects issues with low stock levels and stockpiling behaviours during the COVID-19 outbreak, as consumers turn to large supermarkets with greater shelf capacity and wider choice.

Next quarter we are also likely to see more consumers shift away from physical grocery stores to do their shopping online, with most grocers struggling to scale up their online operations in the midst of such rapid and unexpected growth in demand.

Non-food retailers enter survival mode

As footfall drops following the government-imposed lockdown, many non-food retailers will struggle to manage cash flow, pay rent and look after their staff.

Some retailers might strive to scale up their online operations quickly, to try to offset lost in-store sales, while others have chosen to halt their online sales altogether to protect staff at sorting facilities.

Overall, online sales across categories have increased by three percentage points from last quarter. The increase has been primarily driven by consumers settling into their new in-home routines and purchasing items such as sports equipment, furniture, household appliances, toys and electrical equipment.

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