Shoppers vote with their wallets as Brexit fails to dampen consumer spirits

Wednesday 14th September 2016

Andy Brian, retail partner at Gordons, looks at why Brexit has so far failed to dampen enthusiasm among the UK’s shoppers, much to retailers’ relief.

Before the referendum in June – and, indeed, immediately after it – analysts warned that an exit of the United Kingdom from the EU would create significant uncertainty in the country that would negatively impact shoppers’ spending habits.

Similar to how the recession of 2009 caused millions of consumers to tighten their belts, thus facilitating the rise of value retail, it was expected that Brexit would result in spending being reined in, both in terms of value and volume.

However, what we have seen so far is a show of defiance from shoppers, who have turned expectations on their head and continued to vote with their wallets in the wake of the referendum result.

Encouraging data

ONS figures for the period spanning July 3 to 30 revealed that the volume of retail sales increased by 5.9 per cent compared to the same period a year earlier, but perhaps the most telling statistic is that sales rose by 1.4 per cent when compared to the previous month, which was predominantly pre-referendum.

Whereas the annual sales growth could be attributed to other factors such as lower prices – which fell by 2 per cent between July 2015 and July 2016 – monthly comparisons tend to be a more accurate reflection of current trends, and so the ONS data was certainly encouraging from a retailer perspective.

In addition to sales volumes, the value of sales also increased and provided further encouragement, with a 1.6 per cent rise in the amount being spent in July, compared to the previous month.

Average store prices have been decreasing over the past two years, with 25 consecutive months of falls, and the average price of goods fell once again in July, by 0.8 per cent. However, the total value of sales increased by a much greater proportion over the same period – 1.6 per cent – suggesting that shopper appetite remains strong.

Shocking lack of shocks

The industry has welcomed this robustness, albeit with an air of caution, with the British Retail Consortium (BRC) saying that many will be shocked by the figures. The data was supported by the BRC’s own Retail Sales Monitor, which revealed that UK retail sales in July increased by 1.1 per cent on a like-for-like basis.

BRC chief executive Helen Dickinson pointed out that a “slew of early indicators” had suggested that consumer activity was slowing in the wake of the referendum result, but that sales figures since the historic result are largely unaffected.

Ultimately, the lack of movement may be down to the fact that little has materially changed for the majority of UK households, as the Brexit process could run for some time before a firm conclusion is reached. Compounding this was the July heatwave, which drove food sales, and the holiday season, which always provides fashion retailers with a boost as shoppers expand or refresh their summer wardrobes.

Proactive approaches

Retailers across all sectors also moved in July to dispel any negativity by offering a number of promotions to appeal to bargain-hungry shoppers.

While this may have contributed to the BRC’s estimate that sales growth was 1.9 per cent in July, compared to the 12-month average of 1.2 per cent, what must also be factored in is whether this appetite can now be transferred to full price sales.

For all retailers, a substantial challenge remains in the form of monitoring the situation and responding to any changes in consumer behaviour in the midst of what is a hugely competitive marketplace,

The next steps will now be to sharpen the focus on improving productivity while also guarding against recent increases in the cost base, which can ensure retailers are in a strong position to weather the potentially stormier times ahead.

As negotiations on trade deals and supply agreements ramp up as the Brexit process continues, proactivity will be key to creating a degree of certainty in an uncertain environment.

If you need legal advice on any retail matters please contact Andy on 0113 227 0354 or andy.brian@gordonsllp.com. For more information about us please visit www.gordonsllp.com/sectors/retail-lawyers/.