Retail sales decline in December, driven by drop in food stores

The UK retail sales volumes fell by 0.3 per cent in December 2024, with food stores experiencing a significant 1.9 per cent decline, according to the latest Office for National Statistics (ONS) figures.

Falls in supermarkets were partly offset by a rise in non-food stores, such as clothing retailers, which rebounded from falls in recent months with a 4.4 per cent surge, and department stores that saw a modest 1.2 per cent increase.

Jacqui Baker, head of retail at RSM UK and chair of ICAEW’s Retail Group, expressed concern about the lackluster Golden Quarter. “Despite record-breaking sales for some retailers over Christmas, plus the later than usual Black Friday event, it was a disappointing end to 2024 for the sector…. Many retailers had little choice but to launch their Boxing Day discounting early to maximise sales and clear as much stock as possible ahead of the seasonal slowdown in January.”

Baker noted that while year-on-year retail sales (excluding fuel) rose by 2.9 per cent due to weak figures from December 2023, the absence of a "golden" Christmas boost could leave many retailers struggling.

“Retailers are resilient, but the constant bombardment of challenges means many are in ‘fight or flight’ mode which impacts pricing, people decisions, strategic investment and future growth,” she warned.

“While the longer-term economic outlook is one of cautious optimism, the hope is that consumer confidence continues building. Once this happens, shoppers should return to the high street and provide a boost to retail spending, which the sector is pinning its hopes on.”

Economist Thomas Pugh of RSM UK pointed to stagnation in the broader economy as a key factor. “The weakness in retail sales volumes in December suggests that the stagnation which has gripped the UK economy since the summer continued into the final month of the year. Admittedly, the ONS seasonal adjustment process around Black Friday can play havoc with the retail sales data at this time of year, but even averaging November and December to take account for that, retail sales volumes dropped.”

However, Pugh identified a potential bright spot in discretionary spending, highlighted by the rise in clothing sales. Looking ahead, he anticipates a gradual rebound in consumer confidence driven by wage growth and possible interest rate cuts, although he cautioned that cautious consumers might opt to save rather than spend.

“An interest rate cut in February should help consumer confidence and incomes rebound. But the risks are clearly building that cautious consumers choose to save rather than spend increases in income, raising the risk of weaker growth continuing through the first half of this year,” he said.

Silvia Rindone, EY UK&I Retail Lead, highlighted the challenges and disparities within the sector.

“Despite the overall mixed results, several food retailers saw record sales in December driven by growth in premium own-label products as consumers opted to splash out over the festive season,” she noted.

“Today’s figures demonstrate the growing divide between retailers who have adapted to changing market conditions and those who have not. The latter are increasingly falling behind as consumers become more selective about their spending.”

The rise in online spending, up 1.5 per cent in December, also reflected the evolving shopping habits of consumers. Rindone stressed the importance of retailers investing in their capabilities and understanding customer needs.

“Despite supressed consumer confidence, many retailers are delivering strong sales and volume growth. These are driven by clarity of their proposition, a deep understanding of their customers’ needs and excellent operational skills. Retailers that have failed to invest in their capabilities or proposition are more likely to be struggling and its unlikely consumer demand will increase quickly enough for many,” she said.