Retail rebound: UK shops see sales surge to pre-virus levels

Food and household goods sales boomed in the UK in July, but clothing retailers continue to suffer.

UK retail
The rise in the UK's retail sales figures in July could represent the peak for 2020, some analysts say, as unemployment looks set to rise sharply once the government's job support scheme dries up at the end of October [File: Hannah McKay/Reuters]

British retail sales surged past their pre-coronavirus level in July, the first full month that shops selling non-essential goods were open since the country went into lockdown in March.

The unexpectedly robust figures show the strength of consumer demand even as other parts of the United Kingdom’s economy – and much of the retail sector itself – struggle to recover from recent hefty losses.

Retail sales volumes rose by 3.6 percent from June – above all forecasts in a Reuters poll of economists – and were 1.4 percent higher than in July 2019, the Office for National Statistics said, representing a sharp recovery from double-digit falls in April and May.

Compared with February, before the UK was broadly affected by the pandemic, sales were 3 percent higher.

The UK’s retail sector has enjoyed a much faster bounce back than almost all other parts of the economy hit by the coronavirus lockdown.

Uneven recovery

But behind the headline figures there have been contrasting experiences for different types of retailers.

Supermarkets and other food shops have enjoyed year-on-year sales growth as British people eat at home more. Online sales have boomed, and household goods stores have seen strong demand.

But other areas – especially high-street clothing retailers – have suffered, with clothing and footwear sales still 25 percent down on a year ago.

Companies such as Marks & Spencer, Boots, John Lewis, Dixons Carphone and WH Smith have announced plans for thousands of job cuts.

Economists fear the broad retail recovery could prove temporary.

“July’s retail sales likely will represent this year’s peak,” said Samuel Tombs of consultancy Pantheon Macroeconomics.

Restaurants and bars began to reopen in July – giving people more options for their spending – and unemployment is forecast to rise sharply once a government job support scheme stops at the end of October.

Warehouse boom

Meanwhile, the surge in online shopping has boosted demand for warehouse space, hitting a record in the second quarter, according to the Bloomberg news agency. The value of the rent they are bringing in is surging at more than twice the rate of offices.

UK commercial rental chart [Bloomberg]
[Bloomberg]

“The pandemic has accelerated the shift in consumer habits to online, which means online retailers’ demand for warehouse space in the UK is increasing at unprecedented levels,” said Jonathan Compton, senior director for UK industrial and logistics intelligence at broker CBRE Group Inc. “This sector is undoubtedly a key area of growth for real estate investment.”

The size demand for warehouses climbed to a record 1.2 million square metres (12.8 million square feet) in the three months through June, with online retailers taking up nearly half of that space, according to CBRE. United States-based online retail giant Amazon alone accounted for 36 percent of the market in so-called big-box facilities in the first half of this year, according to Savills Plc.

The growth in demand is being driven not only by online retailers, but also by traditional merchants ramping up their internet businesses to adapt to the post-COVID economy. John Lewis Partnership Plc, which is closing department stores and cutting jobs, has said it expects online sales to account for 60 percent of total trade, up from 40 percent before the pandemic.

“Whether it’s for [personal protective equipment], virus-testing kits or everyday essentials, some supply chains were found wanting during the pandemic, and we are seeing a renewed focus on this by governments and businesses alike,” Segro Chief Executive Officer David Sleath said in an emailed response to questions by Bloomberg. The result will be more production in the UK and more inventory held locally to prevent disruptions.

“Brexit and global trade wars will only add to these pressures, and that means more warehousing demand in the future,” Sleath said.

Source: News Agencies