UK retailers have said the soaring cost of living threatens to push department store sales down in 2022 after a bumper Christmas market period and a year of recovery in consumer spending.
Sounding the alarm on the risks to the UK economy as a whole, the British Retail Consortium said there were significant headwinds for the industry in 2022 due to high inflation, rising prices energy bills and planned tax increases.
In a joint report with accounting firm KPMG, BRS said the soaring cost of living would erode household purchasing power and could potentially weigh on retail sales after a strong holiday season and a year of recovery of the ground lost during the first stage of the Covid-19 pandemic.
According to the latest snapshot, total retail sales rose 2.1% in the key month of December, from a year earlier, and 4.6% from 2019, before the pandemic hit. .
Reflecting a stronger performance for the full year, as the UK economy recovered from repeated lockdowns, total sales rose 9.9% from 2020 and 6.6% from 2019 .
However, retail bosses have said the emergence of Omicron and increasing pressure on household budgets could affect sales in early 2022.
Helen Dickinson, CEO of BRC, said: “Retail faces significant headwinds in 2022 as consumer spending is held back by rising inflation, rising energy bills. and the increase in national insurance in April.
“They will need continued agility and resilience if they are to weather the coming storm, while also tackling the issues of labor shortages to rising costs of transportation and logistics.”
Boris Johnson is under increasing pressure from his own MPs to act on the crisis. Household utility bills are expected to rise sharply from April, when energy regulator Ofgem raises its consumer price cap after soaring wholesale gas and electricity prices. Energy industry bosses have said prices could rise by more than 50%, or around £ 700 a year, in the event of a ‘national crisis’. The increase will come on the same month as the introduction of the government’s plan to increase national insurance by 1.25 percentage points.
According to the BRC and KPMG report, clothing and jewelry sales continued to dominate Christmas gift shopping, while spending on food and drink was strong despite concerns over Omicron’s impact. Industry executives said concerns about supply chain issues appeared to have been overcome as retailers “hit the ground running.”
Dickinson said many people chose to shop online in December rather than taking to nearby shopping streets and malls. Sales of loungewear increased as office staff returned to work from home and spending on formal wear declined when the Christmas holidays were canceled.
Separate figures from Barclaycard showed consumer card spending rose 12.2% in December compared to the same period in 2019, boosted by shopping in supermarkets as consumers stocked up on food and drink for the parties.
However, hospitality and recreation spending plummeted as festive gatherings were canceled and more people were isolated or opted to stay home.
Barclaycard, the UK’s largest credit card provider, processing almost half of all card transactions, said spending at restaurants fell 14.1% in December compared to the same month in 2019, and followed a 3.5% drop in November. Spending in bars, pubs and clubs in December rose 21.2%, down from the 35% increase in November compared to the same months in 2019.
Barclaycard said 43% of 2,000 people polled on behalf of the credit card provider expected high inflation to affect their household budget. “The economic picture as a whole encourages consumers to be more careful with their discretionary spending,” he said.