UK retail sales rebound as Covid-19 accelerates shift to online

Retail sales increased 0.8% in August leading to a 4% rise on February's pre-pandemic levels

UK retail sales extended their recovery in August as locked-down Britons felt more confident about venturing out to the shops. Bloomberg

The Covid-19 pandemic accelerated the UK's shift to online shopping as retail spending in August rose above pre-pandemic levels on the back of heightened digital demand, according to government data.

Retail sales data increased 0.8 per cent in August, according to the Office for National Statistics – the fourth consecutive month of growth – leading to a 4 per cent rise when compared to February’s pre-crisis level.

The August data was also 2.8 per cent up on the same month last year, as the sector enjoyed a faster rebound than other parts of the economy.

“The Covid pandemic has caused a change in consumer behaviour as increasingly purchases are made online,” Rhys Dalgleish, retail sales production manager at the ONS, wrote in a blog.

“The proportion of total sales that took place online has grown by over 10 per cent when comparing the period of the pandemic this year (March to August) against the same period last year.”

Some segments of the retail sector fared better than others, with household goods and spending on home improvements experiencing a 9.9 per cent jump in sales when compared to February, while clothing stores were still 15.9 per cent below pre-pandemic levels.

Online sales flourish

Despite the rebound in overall retail activity, there is a sharp divide between online and high-street retailers, with online and mail order retailing up 34.4 per cent on the year in August, while many traditional retailers outside the grocery sector experience reduced footfall.

"Sales of household goods thrived as the demand for home improvement continued and, despite a dip this month, online sales remained high. However, clothing stores continued to struggle with sales still well below their February level,” said Jonathan Athow, Deputy National Statistician for Economic Statistics at the ONS. “Overall, the switch to greater online sales means the high street remains under pressure.”

The crisis in brick-and-mortar stores is also affecting commercial landlords, with many stores either closing or looking to renegotiate rents such as clothing chain New Look, which wants to link the rate it pays to its turnover.

On Thursday, department store John Lewis wrote off £470 million (Dh2.24bn) in the value of its stores in its half-year results to July 25 and scrapped its annual staff bonus for the first time since 1953. Fashion retailer Next reported a 34 per cent drop in sales over the worst of the lockdown.

Meanwhile, grocery sales, which accelerated at the height of the pandemic when British people ate at home, rose just 0.4 per cent in August, the ONS data found. This partly reflects the uptake of UK chancellor’s “Eat Out to Help Out” campaign that offered discounts to diners in a bid to stimulate economic activity.

The shift to online shopping has also had an effect on the use of cash, with 50 per cent of people in Britain not using cash at all since the start of the lockdown, according to new research from Ubamarket, a retail tech app, instead relying extensively on card and contactless payments.

On Friday, the UK's Royal Mint said it will stop producing 2 pence and £2 coins for at least 10 years as demand for cash dwindles amid the Covid-19 pandemic and a rise in online shopping.

Fears over transmission of Covid-19 through touching cash has fuelled this shift and more than four in 10 Britons now want their shopping experience to involve as little human interaction as possible, the Ubamarket study found, while 34 per cent said that self-checkouts cause significant anxiety due to hygiene concerns.

"The coronavirus pandemic has completely transformed how British consumers want to purchase their goods,” said Will Broome, chief executive of Ubamarket.

"Technology and in-app solutions, such as payments, personalised offers and in-store navigation can help upsell to customers remotely, utilising their previous shopping history and buying trends to increase spend and basket size. This will help retailers offer a highly personalised high street experience without risking unnecessary contact."

On Thursday, the Bank of England identified consumer demand as one of the brighter spots of the UK economy. However, it warned that the sector is vulnerable to an upsurge in Covid-19 cases as well as an expected increase in unemployment when the government's temporary job support programme ends on October 31.