In the UK, overall retail sales plunged in March as stores closed their doors to protect staff and customers from Covid-19. This threw open the doors for e-commerce, as customers turned to online shopping more than ever before, with e-commerce recording 22.3% of all sales.
On 23 March the UK government ordered the closure of stores that were not essential. The fallout of this can be seen by the current figures for the entire month of March, which show that overall retail sales for the month were down 5.1%, the largest fall since statistics have been kept (Office for National Statistics’ Retail Sales Index).
Hardest hit was sales of non-food items, down 20% from February, with the clothing sector particularly hurt. On the other hand, food sales rose dramatically from the previous month and grew by 10.3% in value. Online food sales increased even more, up by almost 20%.
Overall, online sales grew strongly during March, up 12.5% from March 2019 and up 8.3% from the previous month. In fact, as shopping online became much more prevalent, online sales in the UK hit a record high of 22.3% of all retail sales for the month of March, as mentioned above.
Although the monthly figures above look substantial, they are for the period of 1 March to 4 April. As most stores were open until 23 March, only two of the five weeks covered in the period reflect the effects of closed shops and social distancing measures. The key point here, according to CEO Consult, is that these figures indicate the beginning of a major shift, the true extent of which will be more clearly seen when April figures come out in May.
Retail sales overall
According to the figures above, shoppers spent 6% less than they did in March 2019 to purchase 5.8% fewer goods. The ONS statistics for February 2020 suggest that consumers spent 5.7% less to purchase 5.1% fewer goods. The reason for this is the reduced spending on petrol and diesel. Excluding petrol and diesel, the figures show that consumers spent 3.9% less to buy 4.1% fewer goods year-on-year, while the month-on-month figures show they spent 3.8% less to buy 3.7% fewer goods. Finally, the figures show that the value of sales fell by 1.4% while the volume fell by 1.6% in the three months to March 2020 when compared to the previous three months.
Which areas gained and which areas lost?
Department stores saw the strongest online growth, with e-commerce sales increasing by 33.7% compared to the previous year. The month-to-month (from February to March) comparison is even more dramatic, showing an increase of 47.4%. Looking back to the increase in online sales in March 2019, the growth was 0.1%. The growth in online sales this year more than compensated for the closure of stores, with overall department store sales up by 2.2% from 2019 and up 2.8% from last month. This upward movement of non-food businesses is rare, and perhaps department stores are enjoying this because many of the businesses in this sector had already made the move to selling online. Within this sector, however, the sales of clothing followed the same downward trend as elsewhere, with month-on-month sales of clothing down by 34.3%. So, with clothing sales down in department stores, their increase in online sales was due to the increased purchase of food, household goods and other categories—the same categories that showed increases elsewhere.
Food sales were up. The growth in food sales online was 19.7% in March as compared to the previous year. The increase in March 2020 from February 2020 was 17.9%, likely because 5.7% of all food sales took place online in March—a record number. Taking all channels into account, food sales grew by 10.3% in March when compared to February. The increased sales in specific categories include a value growth of 10.2% in supermarket sales, 5% in specialist food shop sales and 32.6% for alcohol sales. The sales of food retailers that operate exclusively online doubled (+101%). Compare this with last year, when the food sales of online-only retailers had only grown by 2.6% in March (2019). The major increase in sales across all food retailers is likely due to initial stockpiling, which was seen most clearly at supermarkets. Having said this, some smaller food retailers closed their stores, while others offered sales only through delivery.
The clothing, textiles and footwear sector trended down. March 2020 online sales of clothing decreased 4.4% compared to March 2019, with a fall of 16.1% from February 2020. When taking all channels into consideration, March 2020 sales were down 28.4% compared to March 2019 sales; they were down 35.5% compared to February 2020 sales. The reduction in sales was less for clothing retailers operating exclusively online—their sales decreased by 0.8%. This is possibly due to stockpiling, with consumers reducing sales in clothing to build up reserves of essentials.
Household goods sales rose with profits slightly down. Compared to last year, an online sales growth of 51.8% was seen in household goods. Comparing March to February 2020, online household goods sales increased 36.9%. In value, however, overall sales fell by 8.9% when compared to the previous month.
For other non-food stores, online sales were up 6.4% when compared to last year. The increase from February to March 2020 was 2.4%. However, this category was particularly hurt by store closures, with a fall of 26.5% in overall sales across all channels in March 2020 when compared to February 2020.
Let’s hear from those in the know
According to Paul Martin, KPMG’s UK Head of Retail, we need to remember that the March figures only show a small picture of how the lockdown, which went into effect 23 March, is affecting retail sales. Paul points out that the figures clearly show that people had cut way down on non-essential purchases as they started to feel anxious about the virus, well before any restrictions were put in place by the government.
He also noted that while grocery stores and online retailers may appear to be benefitting from the current situation, the increases—while large—are not likely going to be enough to make up for losses across the sector in general. Importantly, major increases in sales do not necessarily translate into increases in profits. In the current situation, there are a number of added costs associated with meeting demand. When the loss of non-essential sales due to lock-down is considered, it is likely these will be lost forever. It is the stock—and the businesses–considered to be essential that will make it through the current environment, as will businesses with strong online operations. Others are fully focused on when the restrictions will lift.
Paul thinks that confidence is key. If it falls further, the last thing on consumers’ minds will be retail spend, even when we enter the ‘new normal’. The retail landscape has changed, and it will not go back to the ‘old normal.’ We need to wait and see which retailers will be with us on the other side.
Ed Whitehead is Managing Director Europe for Signifyd, a company that helps online retailers extract more revenue by reducing fraud. Ed believes that technology is crucial for retailer survival in the current situation of temporary store closures and supply chain and workforce disruptions. E-commerce technology is helping retailers maintain sustainability despite store closures by providing an online sales channel. Technology is also being used to reduce human interaction, such as by providing click and collect or automated warehousing.
Ryan Broomfield, partner and retail specialist at RSM, pointed out that many retailers were struggling well before Coronavirus came along, so the dramatic falls in March revenues will put many businesses on the critical list, no matter how much government support comes their way. Although we can expect a lift in April sales as consumers settle into what will have become the ‘new-normal’, there are not many businesses that will come out of this whole. The businesses most likely to survive will be those that are tight and have sound underlying business structures.
Luca Montaldo, founder and managing director of CEO Consult, agrees.
While the most successful businesses have solid structures along with clear, consistent branding and the best positioning possible, these key components have never been more important than in the current uncertain climate.
While retail will certainly look different once we reach ‘the other side’, businesses that have the basics well in place will certainly survive.
And for businesses that do not, now is the time to get your house in order.
