Cost-of-living crunch is ‘already hitting’ the Scottish retail sector

The SRC data comes a day after the Office for National Statistics (ONS) published its regular monthly data on employment and wages across the UK. This showed that workers suffered a record 4.1 per cent plunge in real pay during the three months to June as CPI inflation hit 9.4% last month.

Ewan MacDonald-Russell, deputy head of the SRC, said all the evidence suggests that the cost-of-living crisis is already hitting the high street.

Ewan MacDonald-Russell

“In real terms Scottish retail sales flatlined … as a modest rise in the value of sales was wiped out by the impact of record rising inflation,” he said.

“Food sales rose by 5.3% as shoppers increased their grocery budgets – but that hides the reality that customers’ pounds are buying fewer products. Retailers did see shoppers changing their food shopping to purchase more outdoor food to take advantage of the sunshine, but that was instead of other purchases.”

He added that it was a similar story for high street retailers: “Whilst summer clothing and items sold well, that was very much at the expense of other items. It appears customers are laser-focused on what they need at the moment when purchasing.

“That meant that even heavily discounted out-of-season or discretionary products were ignored in favour of shoppers only buying what they feel is necessary right now.”

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Seemingly determined to enjoy delayed holidays and the first unrestricted summer with good weather, total unadjusted sales rose by 4.4% compared to July 2021. However, after taking account of inflation, the year-on-year change was zero.

Apart from that top-line figure on total sales, the SRC data is not adjusted for inflation. On that basis total food sales increased by 5.3% on a year earlier, while non-food sales rose by 3.7%.

The SRC was careful to warn that with inflation running at historic highs, “a portion of the sales growth will be a reflection of rising prices rather than increased volumes”.

Paul Martin, head of retail at KPMG, noted that consumer confidence polls are currently at all-time lows.

“While this [retail sales] growth is positive, it’s likely to change as consumers arrive back from summer breaks to holiday credit card bills, another energy price hike and rising interest rates,” he said. “With these stronger cost-of-living headwinds on the horizon, consumers will have to prioritise essentials, and discretionary product spending will come under pressure.

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“As margins continue to be challenged and costs continue to rise, a significant drop in demand during the autumn will negatively impact the health of the retail sector. Successful retailers will need to carefully anticipate customer buying patterns in the months ahead, and make sure they balance their offering with the right products, prices and promotions.”

A survey last week from Simply Business found that more than half of small and medium-sized enterprises throughout the UK cited rising fuel and energy costs as one of their greatest threats to the survival. According to the Federation of Small Businesses, costs are at a record high for 89% of small firms.

“The more shoppers cut back on discretionary spending the more difficult things will become for already beleaguered retailers,” Mr MacDonald-Russell added.

“Those businesses are also dealing with huge inflationary pressures which are exacerbating the difficult trading environment. Unless the Governments take swift action, it may be a bitter winter for Scotland’s shopkeepers.”