Finance

Retailers are starting to feel the pinch of inflation

By the CBI
Finance
Published: 26 October 2017

Retail sales declined sharply in the year to October, disappointing expectations for a solid expansion, according to the latest monthly CBI Distributive Trades Survey

The survey of 106 firms, of which 49 were retailers, showed that in the year to October, retail sales fell at the quickest rate since March 2009 – the height of the financial crisis. Overall, sales for the time of year were considered to be slightly below seasonal norms. Meanwhile, orders placed on suppliers also dropped at the fastest rate since March 2009.

Looking ahead to the next month, retailers expect sales volumes to stabilise in the year to November, but orders are expected to see a further decline, albeit at a slower pace.

Growth in online sales slowed in the year to October, to a pace just below the long-run average, but is expected to pick up slightly in the year to November.
Within the retail sector, recreational goods and hardware & DIY performed well, but department stores and specialist food & drink saw sales fall.

Meanwhile, wholesalers continued to report above average growth in sales volumes in the year to October, with a similarly strong increase expected in the year to November. However, motor traders saw a sharp decline in sales volumes, and expect a further fall in the year to November.

Rain Newton-Smith, CBI Chief Economist, said: “It’s clear retailers are beginning to really feel the pinch from higher inflation. While retail sales can be volatile from month to month, the steep drop in sales in October echoes other recent data pointing to a marked softening in consumer demand.

“This is a critical time for a sector that employs three million people across Britain. The Government can give retailers, especially those on the High Street, some much needed relief in next month’s Budget by bringing forward the planned switch of business rates indexation from RPI to CPI.”

Key findings
Retailers:

  • 15% of retailers said that sales volumes were up in October on a year ago, whilst 50% said they were down, giving a rounded balance of -36%. This significantly undershot expectations (+23%), and was the steepest fall in sales volumes since March 2009 (-44%), during the financial crisis
  • 14% of respondents expect sales volumes to increase next month, with 12% expecting a decrease, giving a rounded balance of +3%
  • 14% of retailers placed more orders with suppliers than they did a year ago, whilst 57% placed fewer orders, giving a balance of -43%. This was the fastest decline since March 2009 (-47%)
  • 12% of retailers reported that their volume of sales for the time of year were good, whilst 18% said they were poor, giving a balance of -6%
  • Internet sales volumes continued to expand at a healthy pace (+45) albeit slower than in the year to September (+54%). Internet sales volumes growth is expected to edge higher in the year to November (+50)
  • Sales volumes expanded in other normal goods (74%), recreational goods (+64%) and hardware & DIY (43%). Meanwhile, sales volumes decreased in specialist food & drink (-32%) and non-specialised goods (i.e. department stores (-45%).

Wholesalers:

  • 58% of wholesalers reported sales volumes to be up on last year, and 11% said they were down, giving a balance of +47%. Volumes are expected to grow at a broadly similar pace next month (+43%)
  • Growth in the volume of orders placed upon suppliers accelerated (+37%, from +27% in September), but is expected to slow modestly in the year to November (+28%).

Motor traders:

  • 25% of motor traders reported sales volumes were up on a year ago, whilst 30% said they were down, giving a balance of -5%. This was below expectations (+28%). Volumes are expected to fall further next month (-12%).