The Summer of Spending draws to a close as UK retail sales drop by more than expected

Online sales continue to grow, but overall spending declines.

Article updated: 18 October 2018 12:00pm Author: Graham Spooner

  • The summer months saw consumers splurge their cash on food and drink, but September saw a decline in the quantity bought by 0.8%.
  • Online sales continue to drive growth, increasing by 11% compared to 2017.
  • Investors with holdings in retailers have had a mixed year to date and we advise for investors to be very selective in their decisions.

The latest monthly retail sales figures were one of a mixed bag as retail continued to grow +1.2% in the three months to September with jewellery shops and online stores leading the way. This was despite a decline in the quantity bought by 0.8% largely due to a stark slowdown in food sales in September of 1.5% in food stores; the largest decline in food store sales since October 2015.

Analysts had expected a drop off, but the plunge of 0.8% was worse than forecasts; the fall was largely due to the slowdown following the summer splurge where the World Cup and heatwave saw shoppers stocking up on BBQ food, alcoholic beverages and ice cream.

Online sales continue to tell a success story however, as internet sales increased by 11% for the amount spent in September 2018 when compared to September 2017, with all sectors enjoying strong year-on-year growth. This comes as no surprise following yesterday’s full-year results from online retailer ASOS which reported that profits were up 28% and sales grew by 26% during a ‘record year’ of investment, causing shares to soar 15% in early morning trading. Online fashion store Boohoo told a story of similar success in its half year results at the close of last month, as celebrity endorsements and faster delivery times provoked a 50% jump in group revenues compared to 2017.

But in the current environment, retailers will be hoping that consumers look likely to enjoy more spending power with the latest unemployment data revealing that wage growth is steadily picking up while inflation is set to fall. So while consumer spending appears to have peaked in the summer, looking forward to the months ahead and the busy Christmas period approaching fast, retailers will be holding their breath and keeping fingers crossed that consumers are currently holding back in order to continue to spend during the festive period.

Investors with holdings in retailers have had a mixed year to date and there is every chance that Christmas this year will not add much festive cheer to their holdings. An underweight position on the sector looks best and much like choosing a present for that difficult relative, we advise for investors to be very selective in their decisions.

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Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FCA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.

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