Retailers face nerve-wracking December as consumers hold back

UK consumer spending growth slowed last month to its lowest level of growth since March as department store and clothing spending contracted, but entertainment spending remained strong.

Research by Barclaycard found household spending contracted 3.3% year-on-year in November and by 4.4% versus the month before. It was the weakest month for spending since the deep freeze-affected first quarter.

Data was also released on Tuesday from the British Retail Consortium, showing UK retail sales in November decreased 0.5% on a like-for-like basis compared to the same month last year, even though sales were ahead year-on-year over the Black Friday week.

The BRC found in-store sales of non-food items over the three months to November were down 1.9% on a total basis and 3.3% on a LFL basis. Food sales, meanwhile, increased 1.8% on a total basis and 0.8% on a LFL basis.

Barclaycard data also backed this up, finding that clothing spending contracting by 2.9%, the biggest fall since October 2017, while department stores saw a 7.1% squeeze - the 13th consecutive month of year-on-year declines in spending.

Better news continued for pubs and restaurants, where consumer spending was up 11.3% and 8.3% respectively.

November’s subdued figures reflect a cautious mood amongst consumers, Barclaycard said, with 52% of UK adults expressing confidence in their household finances, the lowest level recorded since this data was first tracked in 2015, with 40% of customers saying they feel confident about spending on non-essential items.

Last week, GfK’s consumer confidence survey showed more robust personal finance expectations, though overall confidence was undermined as people remained very worried about the general economy

November remained a mixed month, said Esme Harwood, director at Barclaycard, shoppers seeming to be holding fire on making their main Christmas purchases despite Black Friday discounts: “This may be unsurprising, given we’ve seen consumer confidence in household finances fall to a record low, likely influenced by ongoing political and economic uncertainty. As the final countdown to Christmas begins, it will be interesting to see whether shoppers will be enticed back to the high street over the next few weeks”.

Helen Dickinson, chief executive of the BRC, said that Black Friday was an increasingly digital event but did little to lift the overall pace of spending. “Weak consumer demand and falling confidence mean that retailers are in for a nerve-wracking run up to Christmas."

Analyst John Stevenson at Peel Hunt noted that digital sales in November generated around a third of non-food sales revenues, highlighting the scale of the online shift around Black Friday and noting the weaker footfall reported on the High Street that weekend, with many retailers treated the following weekend as a similar event, running payday weekend discounts and promotions.

He added: "Christmas will happen as always, although we see the biggest pressure points on the apparel retailers, heavy on stock, and the department store space. Our concerns also point to sale period, which is likely to lurch further online, a threat to those retailers without a single view of stock or strong omni-channel capabilities."

Over at Shore Capital, Clive Black said it was "hard to precisely explain" exactly what has caused this slowdown after quite a strong summer, "but the shoppers’ mood seemed to change towards the end of September, corresponding with the build-up of tension surrounding whatever the UK does with the EU in the future".

"For the first time since the UK-EU referendum we sense that stoicism has been replaced by concern. That concern is set against the backdrop of near full employment, an easing of austerity measures for elements of the public sector and rising real living standards. Accordingly, the economics are not outing at the moment as the frankly chaotic politics of a somewhat disgracefully fragmented and self-interested political class takes its toll."

Black said if the political chaos persists, shoppers are likely to remain cautious and should be a "very challenging" December, with a correspondingly poor New Year trading update season. "Indeed, for the more financially vulnerable retailers, the New Year could be very telling."