Bill Jamieson: Benighted high street belies web retail trade

Consumer spending is a critical contributor to the well-being of the services sector
Consumer spending is a critical contributor to the well-being of the services sector
0
Have your say

One word sums up the widespread perception of the retail sector – torrid. Barely a week passes without news of another high street shop closure and retailers passing into administration. And in the wake of this ragged retreat have come hand-wringing assessments of the future of our town and city centres.

The health of the retail sector is of wider consequence than the boarded-up shop fronts on our high streets. Consumer spending is a critical contributor to the health and well-being of the services sector and our overall economic performance as measured by Gross Domestic Product (GDP).

This spending is strongly affected by changes in population growth, household incomes, the rate of inflation and overall confidence in the economy and our personal finances. And of late there has been little to lift consumer spirits: average weekly earnings are struggling to keep ahead of inflation – the Consumer Prices Index (CPI) has sprung back up to 2.7 per cent in August while UK workers’ total earnings, including bonuses, rose by 2.6 per cent to £520 per week in the three months to July.

Even so, a touch of the feel-good factor would help sustain consumer morale. But households are under daily siege from gloom and doom over Brexit, a falling pound driving up the cost of imported goods and raw materials and the warnings of the fate that would befall us in the event of a “no-deal” exit. Enough, you may well feel, to drive households to a state of catatonic despair over any major purchase or spending commitment.

This would seem to be borne out by latest figures from the Scottish Retail Consortium for August showing Scottish sales rose by just 0.2 per cent on a like-for-like basis compared with August 2017. The figure is also below the three-month average of 0.9 per cent.

And yet… grim though it appears, a closer look at the retail data reveals a different story. Across the UK overall, what has proved to be a more buoyant summer than expected for retailers continued into August, with sales volumes rising by 0.3 per cent on the month. This left three-month-on-three-month growth at a decent 2 per cent, auguring well for a positive contribution from retail to GDP growth in the third quarter – an outcome few expected given the stream of retail outlet failures.

According to Howard Archer, chief economist at the EY ITEM Club, even if sales volumes were to stagnate in September, retail growth would still run at 1.4 per cent in the third quarter, double the average of the past three years. “A continuation of good weather into August,” he argues, “may have temporarily boosted spending and will no doubt be cited by some, although the historical association between unseasonably good weather and sales is actually very weak.”

More than ever, the big story in retail is not so much the beleaguered, flagging consumer as a profound and accelerating change in the way we shop now. On this basis the picture is not so dire as at first appears. Indeed, on a three-month basis, the online-adjusted total for non-food sales in Scotland increased by 0.8 per cent – ahead of the equivalent UK increase.

An intriguing longer-term perspective was provided last week by the Office for National Statistics. This found that the amount of money spent in the retail industry (excluding fuel) increased by 4.7 per cent to approximately £366 billion in 2017 when compared with the previous year.

The key driver behind this is the growth in online retail. But it is the speed and scale of change here that is astonishing. Last year online-only sales increased at a stonking 15.9 per cent compared with the growth of 2.3 per cent in sales within stores from the previous year.

Look at the longer-term comparisons. While the amount spent within stores shows moderate growth since 2008, by contrast, online sales have bounded six-fold and have made possible a growth in overall retail sales. Just six years ago, in 2011, spending in stores was £277bn, and online spending just £25.1bn. And the trend has dramatically accelerated in the past three years, as online spending rocketed from 2015.

Now it is true that despite this relentless change in retail habits, we still spent most of our money in stores. Yet this year we had record proportions for online spending, increasing to 18.2 per cent in August. And department stores continued to reach a record proportion of online retailing in August, at 18.4 per cent. At this rate it is not fanciful to predict that within three years online shopping could account for one pound of every four spent by households.

The surge in online shopping will present ever more profound questions for the future of our high streets and how our town centres can be revitalised. Ever more restaurants and café bars would seem to present a solution. But a report last week from business advisers French Duncan revealed that the number of restaurants in Scotland going bust has almost quadrupled over the past decade. Annual restaurant failures rose from 19 in 2007 to 73 last year. French Duncan also found that the rate of failure was increasing, with 76 restaurants shutting their doors in the first six months of this year alone.

And “sofa shopping” is unlikely to counter the challenges that lie ahead, not just a return to traditional weather but the prospect of persistent inflation ahead driven by a weaker pound, dearer oil and hikes in energy bills.

Ewan MacDonald-Russell, head of policy and external affairs at the Scottish Retail Consortium, says: “Consumers are still prepared to spend, but they have a limited amount of discretionary spending and are carefully choosing each month what the priority is. That’s a concern as that spending is at risk of erosion in upcoming months – for the first time in five years the BRC’s shop price index shows retail prices rising. Therefore, supporting consumers needs to remain a priority for government as we move into the autumn.”

Paul Martin, UK head of retail at accountancy giant KPMG, in a cogent summary warns: “Retailers must continue to pursue repositioning, restructuring and transformation programmes to stay afloat.”