Price rises start to take toll on retailers

Danni Hewson
25 March 2022

•    Retail sales fell 0.3% in Feb 2022
•    Over 3 months prices have risen 7.2%
•    51% of adults say they’re spending less on non-essentials

Danni Hewson, AJ Bell financial analyst, comments on February’s retail figures:

“Slowly, very slowly the cost of simply living day to day life has been creeping up and consumers are having to make adjustments. Overall retail sales fell by just 0.3% but it’s where they fell that is beginning to tell the story. Nonessentials are simply becoming less essential as budgets are having to flex to cover increasing costs elsewhere. Non-store sales bore the brunt of the shift and though online retail is still significantly up on where it was pre-pandemic it’s clear that the end of Covid restrictions has given a boost to bricks and mortar stores, the scales are levelling off and a hybrid balance is being found. 

“Non-food stores performed best in February, boosted by the big office return and belated Christmas shindigs which required a rather less casual wardrobe, or at least a consideration that bottom half could no longer be clad in yoga pants or joggers. And with more people out and about more sales were rung up at forecourts, fuel sales finally surpassed pre-Covid levels for the first time since the pandemic began. Working from home is now no longer the default for those that can do their jobs away from their place of work according to the ONS’ latest Opinion and Lifestyle survey which found just 15% of people were still using their kitchen tables as their primary desk in February. 

“Digging into food sales February’s retail figures are telling a whole host of stories. The end of Plan B restrictions boosted confidence and boosted bar and restaurant sales. Eating in was eagerly swapped for eating out which particularly dented store sales of alcohol and tobacco as people preferred to raise a glass in company rather than in their own homes. But inflation was also at play and consumers seemed to be hunting out value at the expense of everything else. Specialist butchers and bakers took a knock as consumers really felt the sting of higher prices.  Almost everybody (92%) has noticed the weekly shop is getting more expensive and whilst cutbacks are first being made on those nice-to-haves almost a third of consumers are already cutting back on the things they need. 

“Prices have been shooting up over the last three months, whilst inflation currently stands at 6.2% - looking at the difference between volume and value over the three-month period suggests an increase of 7.2% and definitely rising. 

“Until now, retail sales have proved remarkably resilient, still 3.7% up on where they were back in February 2020. But people can’t spend what they don’t have, and that slow creeping erosion of living standards is about to get hit by an energy tsunami.  In just a few days’ time the price cap rise takes effect and households are bracing for impact. Budgets will be reassessed and discretionary spend pared back.  Retailers will have to make their own calculations about whether they can absorb the price pressures also assaulting them or to pass them on and hope that won’t totally squash sales volumes.”

Danni Hewson
Financial Analyst

Danni spent more than 19 years at the BBC, presenting and reporting on business news across a variety of programmes – including BBC Breakfast, BBC News Channel, BBC Look North and latterly Radio 5 Live’s flagship business programme ‘Wake up to Money’. She is now responsible for producing analysis and commentary across a broad range of subjects at AJ Bell, from financial markets, to economics and personal finance.

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