October 12, 2018 3.37 pm This story is over 65 months old

Business Week: Brexit concerns bring sales hangover after summer spree

People are bringing to tighten up the purse strings again

The long hot summer helped many businesses stay afloat after a turbulent start of the year, but September saw an end to the summer spree as a sales hangover set in for retailers, car sales and the housing market. Growth in total sales plunged to the weakest level in almost a year in September as shopper confidence dropped, according to the latest data from the British Retail Consortium (BRC) and the accountancy firm KPMG.

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Across the country, consumers appear to have lost some of their defiance in the face of Brexit uncertainty, as the BRC sales report shows growth stumbled to 0.7% last month, compared with 2.3% growth in September 2017. This would be the lowest growth rate since October 2017. When excluding new store openings, like-for-like sales dropped by 0.2% in the year to September, compared to a 20% increase in the same period the previous year.

The historically reliable back-to-school push did not elevate apparel sales, as it was mainly non-food items that declined: 2.7% on a total basis and 4% on a like-for-like basis. Food sales however fared better with a 2.3% like-for-like increase and 3.4% in total. Online retail continued to perform better still. Clothing sales managed to grab the attention of those browsing the web to refresh their wardrobe. Online retailers registered 5.4% growth in September, but that’s still half as much as last year. Instead, the latest tech launches appear to be a rare source for optimism.

Retail’s latest woes are blamed on a difficult operating environment. “The retail industry pays a disproportionate amount of tax,” said Helen Dickinson, Chief Executive of British Retail Consortium. “It represents 5% of the economy but pays 10% of business tax and almost 25% of business rates. A tax system skewed towards high taxes on people and property is contributing to stores closures and job losses and is stalling the successful reinvention of our high streets. Taxes apply to all businesses, so the answer is not additional taxes solely on the retail industry.”

People are not just shopping less, but also delaying big ticket purchases. Just like retail, car sales had a turbulent first eight months of a the year, an unusually high August, and a September slump. New car sales plunged 20.5% in September according to the Society of Motor Manufacturers and Traders. The decline was felt across the board, with registrations down for private consumers, fleets and businesses all dropping by -20.1%, -22.4% and -6.3% respectively. This was partly due to a new set of emission standards brought in by the EU and a shortage due to manufacturers’ lack of compliance. Only electric vehicles saw a modest rise of 3.9%. Alex Buttle, director of car buying comparison website Motorway, said: “We are now entering a crucial and unprecedented period for the car industry, as the next new number plate will be March 2019 when the UK is due to leave the EU. It’s likely to be a rollercoaster ride for new car sales figures for the foreseeable future, but it feels like we have just plunged into a deep canyon.”

House sales have not had a better September either. Demand from new buyers in the East Midlands remains weak for the sixth successive month, making the twelve-month sales indicators turn pessimistic according to the September 2018 RICS UK Residential Market Survey. Looking at new buyer demand, enquiries slipped again during September, with the net balance falling to -15%. These recent results point to a sustained decline in interest from would-be buyers across the East Midlands. Simon Rubinsohn, RICS Chief Economist, commented: “There are a number of themes running through the comments of respondents this month but uncertainty relating to Brexit negotiations is at the very top of the list.” Chris Charlton of Savills in Nottingham added: “It appears the Autumn market has not arrived and concerns are growing for the last quarter.”

Believe it or not, Brexit appears to be the biggest confidence factor on people’s minds, as experts hedge their bets on the future of the negotiations and retailers hope for a better fourth quarter. Paul Martin, UK Head of Retail at KPMG, said: “The final golden quarter of the year marks the ultimate test for many players, but retailers must also successfully navigate the upcoming government Budget, Black Friday, Christmas, and of course Brexit.”

“Shopper confidence has followed a downward path,” said Jon Woolven of the IGD, the Institute of Grocery Distribution. “Brexit related uncertainty probably plays a part in this, so retailers will be hoping for a clear resolution ahead of the Christmas shopping season.” “Reality finally bites,” added Samuel Tombs, chief UK economist at Pantheon Macroeconomics. “With consumers’ confidence still low amid continued Brexit uncertainty and indicators pointing to slowing employment growth, retail sales look set to be lacklustre in the fourth quarter.”

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