The Office for National Statistics (ONS) said retail sales volumes fell 0.1% between November and December, after economists predicted a return to growth of 0.2%. It will fuel fears that the economy contracted at the end of last year.
There were further signs that shoppers shunned the high street with the figures showing that non-store retailing volumes grew 1.6% month on month, and accounted for 10.6% of all retail sales in December.
Household goods, including electrical appliances, furniture, hardware and music and video recordings, showed the sharpest month-on-month drop with a decline of 3% – the biggest fall since January 2010.
But it was a better festive period for department stores, which saw volumes grow 0.4% month on month.
Clothes and shoe shops were the only other sector to fare better in December, posting a rise of 0.7%.
With inflation nearing 3% in December, retailers will have suffered as sales values also declined 0.1% month on month and by 0.3%, excluding fuel.
Today’s figures come after a lacklustre performance in November, when sales were flat after a shock 0.8% drop in volumes in October.
Vicky Redwood, chief UK economist at Capital Economics, said the 0.6% overall decline in the final three months of the year was yet more evidence that the economy probably contracted at the end of last year.
Howard Archer, chief European and UK economist at IHS Global, said: “The problem that retailers – and the economy in general – face is that consumers’ purchasing power has come under some renewed pressure after seeing appreciable improvement over the first three quarters of 2012.
“Inflation moved back up in late 2012 while earnings growth appeared to falter.”
The Office for National Statistics said that retailers’ internet sales helped to boost overall sales and provided a much greater proportion of business in December than they were expecting.
This has increased the pressure on the high street, where HMV, Jessops and Blockbuster UK have all gone into administration this month.
Peter Saville, partner at advisory and restructuring firm Zolfo Cooper, said: “Today’s figures show a disappointing end to a tough year for many retailers. While 2013 appears to be heading in a similar direction, with the likes of Jessops, HMV and Blockbuster being the first to fall victim, the fact that many, including John Lewis, Dixons and Asos, are still performing well means that all is not lost.”
Most of the news headlines and political soundbites will be focussed on this as an indication of continued economic difficulties. Whilst it is undoubtedly true that the economy remains troubled – and will remain troubled while the indigestion of the excesses (at a government, personal, corporate and financial sector level) from the decade to 2008 pass through the system (note to all: more borrowing will not help, it just pushes the problem to someone else down the line while easing the pain of those making decisions now) – I believe that there are a number of rapidly emerging trends that these figures are a harbinger of, and which will have great importance over the longer term. Some are already well documented but others less so:
• An increasing element of the population are no longer agreeing with the “shopping is a leisure pursuit” mantra that commenced in the 80s. They may like to buy things, but the whole process of getting in the car, driving to the town/mall, finding a parking space, paying for parking, trekking round the shops trying to find what you want, eating rubbish at the overpriced food court, paying for parking, paying for fuel for your car etc., etc. is not fun. Instead they log on to Amazon/eBay/whoever and a few days later the goods appear at their door; this trend is gaining rapid momentum.
• People are becoming increasingly less concerned about “ownership” as long as they retain the “ability to enjoy”. Retailers like HMV were all about selling a physical manifestation of something that is innately non-physical, e.g. music, films, computer games. Now that technology has reached the stage where the physical product is no longer needed in order to enjoy the material, why would you want something that takes up space, is less convenient? Much is made of people buying media on iTunes, but I would suggest that streaming services such as Spotify and Netflix are what is really changing the game.
• People are getting used to austerity, and are realising that certain aspects of their life are no worse as a result. Primark is booming because people still want clothes to go out in, but they can get what they want for half the price of M+S, who correspondingly are not booming. Going a step further however, many people are realising that the accumulation of more and more “things” does not make them happier, so they are just consuming less.
• The government debt crisis in many European countries and the austerity measures in the UK has seen many people re-evaluate their views on government provision of various services and benefits, so they are in turn making the logical decision: borrow less, spend less, save more.
• Retail expenditure will increasingly no longer provide easy pickings for landlords and governments/councils through rent, business rates (UK property tax) and parking charges. It is the retailers themselves that are currently going bankrupt, but these failures will have a knock on effect and I would anticipate big right downs by banks on loans secured against retail property and local councils making further budget cuts about a year down the line as this feeds through. This is not just cyclical, it is structural, so it will require a re-evaluation of town centres and their role in a community. I would also expect more than a few “out of town” shopping centres to become ghost towns.