UK Retail Sales: Composition Points to Weakness

     LONDON (MNI) - The current rebound in UK Retail Sales could prove

temporary. 

     - While one-off factors suggest a July rebound, overall the underlying

trend of retail sales appears to be softening. 

     - Survey evidence and the composition of sales suggest UK consumers are

continuing the trend towards lower-value products. 

     While the July retail sales reading could repeat the June rebound, this is

likely to be driven by one-off effects, such as the Amazon Prime day, although

this is only partially captured in the UK's official retail sales data and could

disappoint against market expectations.

     Value Hunt

     Indeed, UK consumers' hunt for value is already clearly apparent in the

overall trend of retail sales as well as the composition of sales. June retail

sales rebounded, rising by 1.0% on the month, but this followed two consecutive

months of decline. Moreover, the ONS highlighted that the increase was mainly

driven by the "other stores" component, which primarily includes charity shops

and auctions.

     This trend is consistent with the quarterly report from the Charity Retail

Association, which states that Q1 2019 saw impressive growth in the charity

sector. Customer charity sales were reported to be up by 6.2 per cent on a

like-for-like basis in Q1 2019 from Q1 2018.

     The pace of charity retail sales is outstripping overall retail sales in

the UK. At the other end of the spectrum, the Department Store segment of retail

sales appears to be struggling.

     Record Decline

     Non-specialised stores (includes Department Store Sales) were the only

category in the ONS Retail Sales report to record a monthly decline in June.

This now represents the sixth consecutive monthly decline of non-specialised

store sales, the longest period of decline on record. These developments are

consistent with the consumer shift towards more "value" products.

     The divergence between Department Store Sales and Charity Retail Sales

likely represents a warning signal for overall retail sales as consumers

increasingly look for value.

     Internet Running Slow

     Further worrying signs regarding the composition of sales are revealed

within the non-store retailing component, which predominately consists of

on-line retailing (76% in value terms).

     While the June data shows a rebound in both the volume and value of

non-store retailing, on-line sales in value terms declined (the ONS does not

publish on-line sales in volume terms). In fact, in value terms, UK internet

sales have declined month-on-month for three consecutive months, the first time

this has been seen since 2008.

     In recent years the expansion of internet sales has been blamed for the

deterioration in department store sales. However, with both these segments

currently trending lower this could point to a sign of underlying weakness in

the overall retail sales data.

     No Amazon Boost

     Those looking for a boost to on-line sales and overall retail sales data

from the annual Amazon Prime Day could be disappointed. According to Amazon,

their Prime Day July discounting event has continued to grow in popularity with

every year exceeding the previous year. For the 2019 event, Amazon report that

Prime Day sales even surpassed its sales for last year's Black Friday and Cyber

Monday combined in terms of items sold.

     Examination of the official UK Retail Sales data and specifically Non-Store

Retailing, which consists mostly of internet sales, does not reveal any clear

evidence of a July spike in sales for the previous 4 years when Prime Day has

taken place. However, we note that non-store retailing sales increased in July

in three of the four previous years when Prime Days occurred.

     Weaker Sentiment

     UK surveys of consumer activity and sentiment have been trending lower. The

GfK Consumer Sentiment Survey has been trending lower since 2015. The CBI Retail

Reported Sales survey for June printed at the lowest level since 2009, although

it has subsequently recovered slightly. The three, six and twelve-month moving

averages of the more volatile BRC Shop Sales survey have also all turned

negative.

--MNI London Bureau; +44 0203 865 3814; email: irene.prihoda@marketnews.com

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