December retail sales: ‘Omicron’s arrival rudely interrupted high street recovery’

Last week, the Office for National Statistics (ONS) revealed its latest UK retail data. In response, Business Leader has spoken to a few industry leaders to find out what it all means for the future of the sector. 

ONS stated that retail sales volumes fell by 3.7% in December 2021; and non-food stores sales volumes fell by 7.1% in December 2021as the Omicron variant had an impact on retail footfall.

Automotive fuel sales volumes fell by 4.7% in December 2021 as increased home working in December 2021 reduced travel. Food store sales volumes fell by 1.0% in December 2021; despite the fall in December, volumes were 2.0% above levels in February 2020. The proportion of retail sales online rose slightly to 26.6% in December 2021 from 26.3% in November, substantially higher than the 19.7% in February 2020 before the coronavirus pandemic.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown provided her analysis.

Omicron’s ominous arrival in December rudely interrupted the retail recovery party for high street stores. As more shoppers stayed away, hunkering down for more muted celebrations at home, tills were quieter and volumes lower, offering very little Christmas cheer for retailers. Department stores, fashion chains, toy retailers and other non-food stores saw sales plummet, by 7.1% overall. Searching for the latest styles fell out of fashion as events were cancelled and fear of catching the virus spread. But given that shoppers had already been out in force in October and November ticking off gifts from Christmas lists, fewer people it seemed had to make that last minute dash to the shops.

That stint of early Christmas shopping may be why many of us didn’t swap browsing the aisles to filling virtual baskets instead. The amount spent online fell in December by 1.8% when compared with November and was down 8.3% compared to last year when lockdowns spread across the UK. Online department stores the value of sales were down by a third compare to December 2021, with shoppers also likely to have splashed out earlier on expensive presents to ensure they would arrive in time due to supply issues.

Grocers were more resilient as they scooped up customers who’d cancelled restaurant and bar bookings for a festive blow out at home, but it was far from a supermarket sweep with volumes down by 1%. Christmas markets were also casualties of the spread of the variant, with people clearly anxious to avoid crowded spaces. Only 1 in 7 people saying they intended to visit one in mid-December, compared to  more than 1 in 5 earlier in the month according to other data from the ONS**. With fresh guidance to work from home, the commute was again ditched leading to fewer queues at petrol forecourts as drivers had fewer reasons to fill up. Automotive fuel sales volumes fell by 4.7% in December 2021 with sales volumes were 6.6% below their February 2020 levels.

Although the latest ONS data shows footfall rising again in the week ending 15th of January, it was only by a meagre 2%, and followed three consecutive weeks of falls. Overall retail footfall remains 79% below 2019 levels.

Even as plan B restrictions lift, the number of shoppers is unlikely to snap back to pre-pandemic times in high streets and city centre locations given that hybrid working is fast becoming the norm and household budgets are tightening.

Already two thirds of adults are reporting the cost of living has increased over the past four weeks, and with more energy price rises on the way there are likely to be far fewer shoppers merrily splashing the cash in the months to come.

Spending on delayable purchases like furniture or homewares is likely to be hit, while value chains offering cut price fashions should be able to keep custom brisk as long as they aren’t forced to pass on rising costs to consumers in the form of steeper price tags. Brands offering iconic products should also prove more resilient. Such is the draw of coveted branded items like smart watches, trainers and handbags, fans are more likely to swallow consistent price rises. Luxury customers tend not to be as swayed by economic turbulence and income squeezes, including when money in the bank is losing its value at a faster rate than normal. ‘’

Brand loyalty has never been more important

Following the release of the retail figures, Jamie Saucedo, Senior Vice President of Business Operations at PFS discusses how this indicates a permanent shift in consumer shopping habits and why building and retaining brand loyalty has never been more important for retail success.

With the latest ONS figures revealing that retail sales dropped by 3.7% in December – never has building and retaining brand loyalty been more important for the success of retail. The face of brand loyalty, however, has changed significantly over recent years.

Previously, physical stores were considered the primary means in which retailers and brands could cultivate and maintain loyalty with their customers – however, new research from eCommerce fulfilment provider, PFS, suggests that this is no longer the case. According to the findings, despite 51% of consumers agreeing that brand experience is often better in-store than online, when brand connections are made, they are stronger online (38% compared to 23% offline/in-store).

This sentiment was echoed by 42% who agree they receive a more personalised experience online than in brick-and-mortar stores, as they receive benefits such as personalised recommendations, sizing predictions and photo reviews.

Still, it’s not as simple as just having an online presence. To retain the custom of today’s shopper, brands must also offer up incentives around cost and convenience. When asked about the most important factors influencing their decision to make multiple purchases from the same brand/retailers over the last 12 months, consumers were mostly driven by free delivery (37%) and competitive prices (33%). In the UK especially, shoppers are more driven by cost than brand loyalty (31%).

Likewise, when asked about the ideal online shopping experience in 2022, returns proved a key consideration, with over half of consumers stating that they prefer to have multiple options to return a product. After another tough year in retail, retailers and brands must recognise that brand loyalty isn’t what it once was. Online is beginning to encroach on the territory that physical retail once ruled unchallenged, but to appeal to today’s customer, considerations around cost, convenience, and conscience, need to be brought to the forefront of operations. This involves providing a range of options around delivery and returns that seamlessly integrate across commerce channels.

The financial perspective

Brian Flesk, Head of Retail at Hitachi Capital Consumer Finance, reacts to the monthly ONS retail sales figures – which showed that sales volumes fell by 3.7% in December, significantly worse than the 0.6% decline forecast.

December was always going to be a chilling prospect for retailers, many of whom spent the month wrestling with supply chain disruption, an inflationary headache and related cost-of-living crisis, and a Covid wave that saw footfall dive 18% below pre-pandemic levels. All that disruption was enough to dissuade shoppers from filling their baskets, and their stockings, to the same extent as the previous month, or indeed the year before.

Our own data suggests that consumers used point of sale finance options to bolster their spending power around 2% less often than in December 2020, but the value of items bought with store credit climbed by 3.5%. These are incremental changes in the grand scheme of things but do suggest that economic uncertainty is driving shoppers to use credit for bigger ticket items, with more manageable repayment terms.