Quarterly retail update

Retail performance in Q3 2021

Despite Q3 2021 representing only the second quarter of uninterrupted business since Q3 2020, retail sales by volume were down by -3.9% in Q3 2021 compared with the previous quarter and down -0.1% compared with the same period a year ago, according to the Office for National Statistics (ONS). These results point to consumers spending more in the leisure sector than in retail related categories. For example, a drop in both household goods sales and food sales this quarter compared with Q2 2021, is linked to increasing focus on social spending, such as eating and drinking at restaurants and bars following the lifting of coronavirus restrictions.

Quarterly UK retail sales (incl. Fuel) seasonally adjusted -?% change in value and volume year on year?

The retail sector performance continues to reflect changing spending patterns with fewer consumers shopping on the high streets and more shopping online. The majority of the sales that shifted online have been retained since stores reopened especially in the grocery and clothing sectors. Despite the reopening of stores in April, online retail sales were up by 0.5% in September compared with August and now account for 28.1% of all retail sales. Online retailing overall rose by almost 50% since 2020, with food and household goods retailers reporting a growth rate nearly double that.

Indeed, according to data from the British Retail Consortium, footfall in store fell by 16.8% in September when compared to pre-pandemic figures in 2019 as fears of fuel shortages prompted consumers to curb non-essential shopping trips. As a result, non-food stores reported a fall of -1.5% in volume this quarter compared with Q2, driven by a contraction in household store sales of -9.3% in Q3 over the previous quarter.

UK internet sales as a % of total retail sales

Online grocery market share has doubled since pre-COVID

Online grocery sales as a share of total food retail have risen to 10.6% in September 2021 from 5.1% in February 2020. Having increased investment in their online capacity and capabilities, retailers have made the online channel work better and more profitably for them. As a result, it will be important for retailers in the grocery sector to see online spending growth sustained especially because they have also been losing sales to the hospitality sector since the reopening of the economy.

Our research shows that the number of people using online for their main shop increased by one percentage point to 27% in Q3 2021. Meanwhile the number of people using large supermarket stores as their primary channel for grocery shopping declined by three percentage points (to 54%) compared with the same period two years ago (57%).

Channel usage for main grocery shop

Some non-food categories become established online

According to our Tracker, on average 62% of consumers made their last purchase online across all non-food categories, representing an eight percentage point increase compared with the pre-COVID period of Q4 2019. According to ONS data, the online channel represented 24.9% of non-food sales in September compared with 15% for the same period two years ago.

Channel usage for last purchase in the category

Headwinds casting a shadow over Christmas

The speed of the economic recovery combined with the growth of online shopping and labour shortages have all contributed to the capacity constraints in the logistics sector. As a result, the retail sector has been experiencing major supply chain shortages, with businesses not able to secure materials, goods or services. Such shortages have been highlighted by images of bare shop shelves and delayed deliveries. The pandemic has exposed structural flaws and the need for businesses to rethink their ‘just in time’ business model to become more ‘just in case’. In the meantime, the net effect of these supply pressures is reflected in higher prices for consumers. In a worrying sign of the extra savings made during the lockdown being drained because of rising living costs, more than one in three consumers (36%) say they have seen their overall personal expenditure go up in Q3 2021. In addition, compared with Q2 2021 there was a 16 percentage point increase to 59% in the number of consumers who spent more this quarter because prices were going up. One in ten consumers (12%) have experienced a drop in wages in the last three months and one in four saw a decline in their savings (26%).

However, there are indications that there will be strong consumer demand following the ‘cancellation’ of Christmas last year because of the pandemic. Indeed, some consumers have already started to do their Christmas shopping which could result in a more extended Christmas shopping period. Ironically, that could make the high peaks in demand normally expected around this time of year more manageable. Some businesses will have anticipated port congestion and driver shortages by bringing in their merchandise a lot earlier than normal. But for many, promises of ‘next or same day delivery’ might not always materialise with further supply chain disruption inevitable as large container ships are turned away because some of the main UK ports are full. As a result, there may be shortages this Christmas with clothes, toys and furniture being among the worst-hit items. While this will be sending a ‘shop early to avoid disappointment’ message to consumers, a return to panic buying also risks exacerbating existing bottlenecks.