Retail market supported by record growth in furniture store sales
There was a surprise uptick in UK retail sales growth in August, according to data released by the Office for National Statistics (ONS) this morning. The data showed sales volumes 3.9% higher than a year ago, up from annual growth of 2.5% in July.
Overall, price competition has supported sales volumes. The prices of goods sold in the retail industry fell by 1.2% over the year to August, encouraging consumer spending on these items. With the exception of clothing & footwear stores, all other broad store categories – from supermarkets to department stores – have seen declines in prices.
There are significant variations in sales performance across store categories. There was notable growth in household goods store sales, which rose by 12.7% in volume terms over the 12 months to August. The main contribution to this was furniture store sales which increased by 23.4% – the largest growth since records began in 1988. The improvement in the housing market over the last 12 months appears to have led to an increase in the number of individuals splurging on their homes.
In sharp contrast to this, sales in predominantly food stores (such as supermarkets) fell by 0.2% in both volume and value terms over the 12 months to August. Despite some fierce price competition in the food retail market, the sector is struggling to achieve significant volume growth.
Looking ahead, Cebr expects retail growth to slow slightly over the next 12 months. Critically, the housing market is likely to cool and this will curb consumer confidence. The weakness of earnings growth in the economy, as shown by yesterday’s labour market release, will also keep a lid on consumer spending. Partially offsetting this, we expect a period of low price growth and intense competition to support retail sales volumes. This is good news for consumers, but suggests retailer margins will be squeezed.