‘As retail passes the year’s halfway mark things could be better – but they could have been far worse’

Getting to the midpoint has been an endurance trek, but most have lasted the distance well and, while there may be some gruelling sections to come, the industry has shown its stamina.

The year started well as fears of a downbeat Christmas proved unfounded for many retailers and they got off on a good footing. Stores bounced back as shoppers embraced the chance to get out as the pandemic receded. That is still proving to be the case.

The latest MRI Springboard data for June showed that footfall across all retail destinations was up 3.7% month on month – the highest June increase since 2009. Traffic was ahead 4.2% year on year and the gap with pre-Covid levels reached its narrowest yet at -8.6% compared with -10.8% in May. 

Higher footfall has been accompanied by higher sales. A 3.9% rise in May, according to the BRC-KPMG Retail Sales Monitor, was ahead of the 12-month average growth of 3.4%.

There has been encouraging news from companies too. Sainsbury’s this week reported a return to volume growth amid falling inflation, and electricals specialist AO also flagged reduced inflationary pressure as it returned to profitability.

So what does it mean for the six months to come, culminating in the crucial Christmas period? 

While industry sales have been up, frequently that has reflected the impact of inflation and volumes have generally not kept pace. The May performance reported by the BRC, for instance, was powered by grocery and non-food categories were pretty flat.

For the rest of the year, it is likely that retailers of more discretionary products can expect a similar level of cautious spending among shoppers because inflation – despite some improvement – remains stubbornly high. 

Consumers may also be unnerved by higher mortgage rates – a five-year fixed deal now typically bears an interest rate of 6% following the Bank of England’s raising of rates to a 15-year high. Although inflation may have peaked efforts to reduce it overall do not seem to be coming to much so far. 

“Retailers themselves still face higher costs. While some may have come down, others have not and managing this will be a juggling act”

Retailers themselves still face higher costs. While some may have come down, others have not and managing this will be a juggling act. 

Many have understandably raised wages for their staff, but that comes at a price. Sainsbury’s chief executive Simon Roberts said this week: “We should remember that energy costs are still high and labour costs have been elevated permanently.

“We would expect inflation to continue to improve, but it’s not going to go back to where it was before because the cost of producing food is clearly elevated from where it was a year or two back.”

Like Sainsbury’s, which has invested about £60m in lower prices since March alone, retailers will have to continue to find ways of providing value for money over the next six months. Every round of price reductions typically means costs have to be taken out to pay for them, so efficiencies will remain a big feature for the rest of this year and beyond.

This month the Christmas in July shows would typically be in full swing, but this year many are likely to still be virtual as some habits formed during the pandemic endure. While shoppers have welcomed the reopening of stores, post-pandemic shopping habits and conditions remain challenging. The world has changed and a return to ‘normality’ is a way off.

However, as far as retailers are concerned, their hard work means that although things could certainly be better they could easily have been far worse. That sundowner by the beach has been hard-earned this year.