Retail sales ahead of inflation despite ‘fragile’ consumer confidence

Retail sales in March increased above the headline rate of inflation for the first time in over two years, according to figures from the British Retail Consortium (BRC).

Total retail sales in the UK grew 3.5% year-over-year in the five weeks to 30 March. This increase is above the three-month average of 2.1% and the 12-month average of 2.9%

The latest figures on inflation from the Office for National Statistics (ONS) show the Consumer Price Index (CPI) rose by 3.4% in the 12 months to February. This means retail sales have risen more than inflation for the first time in over two years.

Food sales increased 6.8% year-on-year over the three months to March and also grew year-over-year.

According to IGD CEO Sarah Bradbury, grocers saw “significant volume growth” in March.

“This marks the fourth consecutive month of year-on-year volume growth, offering hope to retailers and suppliers of finally being able to re-grow margins that have shrunk during the cost-of-living crisis,” she says.

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Retailers and brands across sectors have seen a trend of falling volumes amid rising inflation and the cost of living crisis. Sales growth for retailers had been driven by increased prices rather than increasing volumes.

For the supermarket sector in particular, where price competitiveness is extremely high, this situation had put pressure on margins as costs ramped up and consumers opted to trade down to save money.

The choice being made by consumers to buy more food and a resultant return to volume growth will help ease pressures on margins for supermarkets, as they seek to bolster their value credentials through promotions and loyalty schemes.

Last week Sainsbury’s launched a new initiative, ‘Low Everyday Prices’, a new value offering exclusively for branded products. Waitrose and Aldi also both recently made pledges on price as competition in the sector remains fierce.

Consumers still cautious

An early Easter bolstered March retail sales, says BRC chief executive Helen Dickinson. Consumers stocked up on food in the run up to the long weekend at the end of the month, she notes.

While food sales saw strong growth in March, non-food sales decreased 1.9% year-on-year over the three months to March. This decline is steeper than the 12-month average of 1.1%.

Wet weather last month dampened sales of garden furniture, BBQs, DIY products, and clothing and footwear, according to the BRC.

“Retailers will be hoping that the bounce back of March sales is more than just an Easter blip,” says KPMG head of UK consumer markets, leisure and retail, Linda Ellett.

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“Economic indicators are heading in the right direction with inflationary pressures easing and interest rates having potentially peaked, however consumer confidence remains fragile and households continue to keep a close eye on where their tight budgets are being spent,” she adds.

Figures from GfK’s Consumer Confidence Barometer showed a lacklustre headline score last month, but contained glimmers of optimism.

The score for consumers’ view of their own personal finances over the next 12 months stood at 2, the first time in two years the measure has been positive.

Dickinson notes retailers have seen a “difficult” start to the year, but remain hopeful that warmer weather will improve consumer confidence and translate into strong retail sales in the coming months.