Despite high growth in gym clothing sales, as the population seek to meet their New Year resolutions, the start of the New Year saw a fall in overall retail growth, down to only 0.1%, much lower than expectations.

The fall in retail growth could be explained by falling real wages. As the rate of inflation, currently at 2.7% (CPIH), has continued to rise over the past years, wage growth has struggled to keep up, creating pressure on consumers to be more stringent in their spending leading to falls in high-street spending.

As a result of this, many retail stores have seen necessity to cut back costs, as retail sales slump. For example, Debenhams announced that it will be cutting 320 store management roles, which was also triggered by the Christmas sales being less than expected.

However, Ben Brettell, senior economist at Hargreaves Lansdown, said “The Bank of England says wage growth is on an upward trajectory, while inflation may well have peaked”. The lacklustre economic growth in the UK will be limiting for the increasing inflation, whilst wage growth is expected to continue upwards.

But the likelihood of this is uncertain, as consumer confidence still remains very low and many economists expect interest rates to increase to 0.75% from 0.5% in May, which will create even less incentive to spend as borrowing becomes increasingly expensive. Consumers may move to primarily spending on necessity goods, and spending less on luxury goods potentially affecting retail.

Whilst retail growth may be falling, companies can continue to compete for consumer demand by striving to market themselves as best as possible online. There is an increasing trend towards online shopping, with the ONS reporting that almost one in five pounds is spent online. So, whilst shops may struggle to capture consumer demand on the high-street, marketing themselves online and keeping up with key trends such as gym wear could define the future success, or not, of entities in retail.

Jamie Dawood

Image: [SGS UK]