British shoppers have notched up the fastest quarterly growth in online retail sales on record, in the latest sign of the shifting trends fuelling the decline of the high street.
The Office for National Statistics said the amount of goods sold outside of bricks-and-mortar stores increased by 9.4% in the three months to April, the strongest growth of any quarter since comparable records began in June 1988.
The internet spending boom was fuelled by online promotions and warmer weather over the past three months after the hottest February on record and a sunny Easter weekend.
What's the problem?
Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. The past year saw the disappearance of Toys R Us, Maplin and Poundworld as a result.
In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores.
At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
How has the festive season gone so far?
Trading has been tough, particularly for clothing retailers, as another relatively mild autumn hit sales of costly items such as coats and knitwear while shoppers have held out later than ever in the hope of getting bargain presents. The founder of Sports Direct, Mike Ashley, described November as “the worst on record, unbelievably bad” as he warned that warned that Debenhams and other big retail names faced being “smashed to pieces” by a high street downturn.Even online specialist Asos shocked the City when it issued a profits warning earlier this month as it admitted it had lost sales by not offering steep enough discounts during the Black Friday week.
What help do retailers need?
Retailers with a high street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after March 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.
What is the government doing?
In the October budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m “future high streets” fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
What is the outlook in 2019?
Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the Far East, will also add to costs and hit profits.
Clothing sales were the main driver of growth as consumers updated their spring wardrobes. Online-only retailers make up the majority of sales within non-stores, with fashion items the most popular purchases.
Elsewhere, sales continued to fall at department stores, reflecting the gloom on the high street. Online retailing accounted for 18.7% of total sales in April, up from 17.7% a year ago.
The data comes amid growing concerns for the high street, with major retailers announcing store closures and job cuts over the past year. This week the Topshop owner Sir Philip Green unveiled plans to close 23 UK stores with the loss of 520 jobs as part of a rescue plan for his Arcadia retail empire, which also includes Dorothy Perkins, Miss Selfridge, Wallis, Evans and Burton.
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Total sales across the high street and online were flat in April month on month, beating forecasts made by City economists for a drop in sales of 0.3% amid the political turmoil of Brexit – a sign that British consumers have generally shrugged off the uncertainty.
Lisa Hooker of accountants PwC said: “Record temperatures over the Easter weekend definitely got consumers spending, with April sales up by 4.6% versus last year, excluding fuel.
“This is reflected in our own consumer sentiment survey, which showed that confidence had an uptick this spring and has not been dented by Brexit concerns.”