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UK retail: better than it looks?

Daniel Lane

Daniel Lane - Fidelity Personal Investing

There’s just no let up for the nation’s retailers it seems, as today’s UK retail sales figures continue the story of a sector in trouble.

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Sales in the three months to November fell by 0.4% - the first decline since April 2018. Year-on-year growth was the lowest since April last year as well at just 1%, dragged down by an overall decrease of 1.1% in non-food stores.

By now we’re used to the travails of the high street, with expensive flagship stores, online shopping growth and reduced footfall often the go-to reasons for its fall from grace. And away from the general malaise, last week saw even more individual problems come to light among some of the well-known strugglers like Mothercare and Ted Baker. But there are a few things today’s figures don’t tell us about the health of the wider UK retail sector, and why there still might be hope yet.

First is the fact that the November reporting period takes into account sales from 27 October - 23 November, and so misses out the all-important Black Friday sales flurry. Barclaycard labelled UK retail trading performance over the day “outstanding” this year despite gloomy predictions, so we might not have seen the positives this month but the sector could have a strong start to 2020 if the numbers boost December’s reporting period.

Retailers artificially raising prices only to drop them in the sale had been touted as a reason why shoppers might steer clear of Black Friday this year, especially of the high street, in favour of online checkouts. But even the UK’s traditional stores saw a jump in sales this time around. Retail data firm Springboard reported a 3.3% rise on 2018 in shop footfall, with numbers up 6.5% in the nation’s shopping centres.

One reason for the lift could be the date itself. Falling on the final weekday of the month this year means Black Friday came alongside the last payday before Christmas for millions of UK workers. Numbers tracked by Springboard show overall footfall rose strongly at 5pm, which could indicate workers shunned Friday night drinks, instead opting for the sales.

Second is the current state of the UK consumer. Yesterday’s Consumer Price Index (CPI) figures show inflation is still lagging behind wage growth in a welcome boost for households across the country. Add on top of that Tuesday’s figures showing unemployment at a 44-year low and retailers have more opportunity to draw in spenders going into the festive period and the new year.

So, all is not lost for the sector just yet but competition for footfall, in-store or online, has the potential to force even greater pressure on margins after the sales period ends. Those companies able to generate revenue through clever use of data, efficient bricks and mortar portfolios and beating their rivals to the next pound could split the sector’s fortunes even further.

What is clear is that stores with highly differentiated offerings and definite identities have been able to muddle through so far. If the all-things-to-all-people propositions continue to fall away, 2020 could be the year the high street finally evolves, bringing boutiques and unique experiences to shoppers fed up with years of chain stores and predictable product lines.

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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