British retail sales declined 0.3% month-on-month in December, according to the latest data from ONS, indicating weak consumer confidence.
Store sales volumes in the non-food category rose by 1.1%, while food fell by 1.9%.
Danni Hewson, head of financial analysis at AJ Bell, commented, “Some of our biggest supermarkets have reported record Christmas trading figures but official numbers from the ONS show a significant fall in food sales during December.
“Worried about their budgets, many households started squirrelling away festive treats months before the big day and with confidence reeling after October’s Budget some consumers seem to have cut back on food spend as sales fell to their lowest levels since 2013.”
Elsewhere, clothing sales volumes rebounded by 4.4% following large falls in the previous two months.
Read More: Share Price Decline For UK Grocers Indicative Of Market Challenges, Notes AJ Bell
The 'Golden Quarter'
Overall retail sales in the fourth quarter fell by 0.8%, data showed.
Hewson added, “The golden quarter isn’t just a phrase trotted out by analysts, it’s a crucial period of time when retailers make enough money to see them through those sluggish early months of the year when people are paying off their credit card bills and thinking ahead to summer sun.
“With sales disappointing and confidence scraped raw there will be concern that some retailers won’t have a cushion to fall back on and will be vulnerable.”
According to Erin Brookes, European retail and consumer lead at Alvarez & Marsal, retailers failed to drive spending in the crucial 'Golden Quarter' despite working hard on "in-store and online shopping experiences and offering some enticing deals”.
It could set them up for a difficult start to 2025, she said and added, “categories including food and non-store retailing were hit as shoppers were more discerning about their Christmas purchases”.
'Cautious Spending'
Nicholas Found, head of commercial content at Retail Economics, echoed the same sentiments stating that cautious spending defined the festive season, slowing momentum in retail.
“Scars from the cost-of-living crisis saw fragile consumer confidence persist in December as shoppers adapt to higher prices, prioritising value during the Christmas period,” he added.
Kris Hamer, director of insight at the British Retail Consortium, stated, “Retail sales picked up in December, but this, unfortunately, did not offset the shaky start to the ‘Golden Quarter’.”
Weak Trading Environment
According to Barclays, 'After another week of Christmas trading updates, the emerging picture is one of a very weak trading environment for non-food retail in October and November, partly offset by stronger trading in December.
Barclays added that the key question is whether the improvement over Christmas was just a flash in the pan or if this can carry through into Q1.
'With stagnant UK GDP growth and a risk that Government derived cost increases will drive higher inflation, we tend towards the former with a cooling outlook on the UK consumer’s discretionary intentions,' it noted.
Found added, “With retailers typically operating on low single-digit margins, weak growth leaves little room for manoeuvre as employer tax increases loom.
“This will inevitably widen the gap between retailers who can invest in operational resilience and those that cannot afford to – risking higher prices, hiring freezes and store closures.”
Online Sales
Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, highlighted that a notable shift to online sales was seen in December and that rising online penetration could be “the final nail in the coffin” for many.
He explained, “This is not great news for many store-based retailers, even those with online operations. Most retailers make lower profit margins online and their stores have high fixed costs, which are set to rise again in April following the Autumn Budget.
“Without higher revenues in store to offset these costs, profitability across the sector is likely to come under pressure.”
