City snapshot: Warm weather boosts June retail sales

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The hottest June on record boosted UK retail sales last month, according to the BRC-KPMG Retail sales monitor, though sales growth continues to significantly lag inflation.

For the five weeks to 1 July, total UK retail sales grew by 4.9% compared to a decline of 1% in the same month last year.

June’s growth was above both the three months average growth of 4.6% and the 12-month average growth of 4%.

On a like for like basis retail sales increased by 4.2% during the month, again above the 12-month average of 3.6%.

Food sales increased 9.8% on a total basis and 10.1% on a like-for-like basis over the three months to June.

Non-food sales increased by a more modest 0.3% on a total basis and decreased 0.5% on a like-for-like basis over the three-months to June. This is below the 12-month total average growth of 0.8%.

In-store Non-Food sales increased 2% on a total basis and 0.6% on a like-for-like basis, while online non-food sales decreased by 1% in June.

BRC CEO Helen Dickinson commented: “Retail sales growth ticked up slightly in June as hot weather prompted purchases of summer essentials. Sun-seekers headed to their favourite retailers to buy swimwear and beach towels, and outdoor games, garden furniture and barbecue food were boosted as families came together to celebrate Father’s Day. People were much more cautious about big-ticket purchases like furniture and technology equipment.

“Consumer confidence remains fragile. But, with headline food inflation easing for two months in a row as prices of essentials start to fall thanks to stiff competition and consumers continuing to shift shopping patterns to mitigate as much inflation as they can, confidence could improve.

“However, retailers’ efforts to bring down prices could be derailed by costly reforms to the packaging levy (Extended Producer Responsibility) and a new deposit return scheme putting an inflationary £4bn burden on retailers. A hike to business rates is also on the cards for next April. Government must look at how these costly policies will impact inflation and consumers and think again.”

Paul Martin, UK head of retail at KPMG, added: “The sun was shining on retailers in June, with the warm weather bringing consumers back out to the high street and like for like sales up nearly 5% on last year.

“Sales of suntan lotion, food and clothing were all given a boost as consumers made the most of the record June temperatures. Online sales continued to fall, but at a much lower rate, with household appliances and gardening equipment proving popular.

“Apart from a blip in May, retail sales growth has remained steady at around 5% every month in the first half of this year. However, the growth comes against a background of much higher inflation levels – resulting in reduced margins and profitability for operators across the sector.

“As we move into the last half the year, retailers will be hoping that anticipated falls in inflation start to deliver stronger sales growth in order to improve the overall health of the sector. The wild card continues to be food inflation which remain stubborn, and is having a negative impact on consumers’ ability to spend on non-essential items.

“Consumers have so far remained resilient, but the triple threats of further interest rate hikes, resolute double digit food inflation and an economy recovering at slower rate than predicted, could hamper a return to much needed profitable growth across the retail sector.”

IGD CEO Sarah Bradbury, commenting of food sector performance, added: “June was yet another month of very high growth in food and drink sales, driven largely by ongoing inflation. However, there are signs of better news, with volume sales on the cusp of registering a positive performance after being almost permanently negative for the last two years. This was almost certainly underpinned by the record good weather last month.”

Morning update

Consumer card spending grew 5.4% year-on-year in June as the warm weather encouraged Brits to shop for summer clothes and socialise at pubs and bars

According to the latest data from Barclaycard, spending on groceries soared 9.5% year-on-year – the highest growth in the category in two years, yet still lower than the rate of food price inflation (18.4%).

This comes as over two thirds (67%) of shoppers say they are looking for ways to reduce the cost of their weekly shop, with almost a third (32%) of these consumers shopping at multiple supermarkets to source a range of deals and two in five (39%) are buying more “yellow sticker” items.

In a further sign that shoppers are seeking out value-for-money wherever possible, discount stores were up 8.8%, seeing their largest growth since April 2021. Eight in 10 (81%) are worried about “shrinkflation” – when products are sold in smaller packages or portion sizes yet cost the same or more than they used to.

In June, more Brits (70%) had noticed examples of shrinkflation than in May (65%), particularly when buying chocolate (46%), crisps (42%), packs of biscuits (37%) and snack bars (32%).

In response to shrinkflation, 29% of shoppers are buying their favourite products less often – only when they want to treat themselves – while almost a fifth (18%) are switching to brands which haven’t changed the size of their products.

Shoppers are also spotting shortages of certain products at the supermarket. Almost two fifths (37%) have noticed that some basic items – such as eggs, fresh produce and tinned staples – are regularly unavailable, while a fifth (20%) feel that there are fewer new products being introduced onto the shelves.

Spending on non-essential items increased by 5.7% in June – more than in May (3.0%) – largely thanks to the sunny weather driving demand for socialising with friends and family.

The higher temperatures inspired shoppers to renew their summer wardrobes, with spending at clothing retailers rising 4.0% – the highest growth in almost a year – while pharmacy, health & beauty had its biggest boost (6.8%) since January.

After a decline in May (-1.9%), sports and outdoor retailers returned to growth (1.1%), as consumers embraced more active, outdoor lifestyles and purchased camping equipment for Glastonbury and other festivals.

Meanwhile, home improvement and DIY stores, including garden centres, were another bright spot, seeing their first growth in over two years (3.9%) as Brits took advantage of the sunnier weather to spruce up their homes and gardens.

Spending at pubs, bars & clubs increased 8.4% – their biggest boost since January this year. This growth was driven by several factors, including the warm weather, rising beer and alcohol prices, Father’s Day celebrations, and the respite from industrial action in the transport sector.

In contrast, restaurants saw yet another month of decline (-8.2%), with three in 10 (30%) Brits planning to spend less on eating out in order to offset rising household bills.

Esme Harwood, director at Barclays, said: “June saw Brits get into the swing of summer, bringing a welcome boost to several sun-starved categories.

“Pubs & bars benefitted from Brits soaking up the sunshine in beer gardens, while butchers and garden centres saw a jump thanks to the arrival of barbecue season. Even clothing retailers, which have struggled since the start of the cost-of-living crisis, returned to growth, as consumers took advantage of the heat to refresh their summer wardrobes.”

Will Hobbs, chief investment officer, UK wealth management, Barclays said: “The UK economy remains in a precarious spot. Inflation contagion is perhaps furthest advanced here on the evidence of incoming wage and core inflation data. There is more work for central bankers yet, even as the creaks and strains on the mortgage and other borrowings become increasingly audible.

“Difficult quarters lie ahead as the surge in interest rates continues to put pressure on household cash flows. However, there are mitigants. Much of that extra mortgage strain will fall on households more able to bear it, with significant excess savings still left over from the pandemic.”

Elsewhere, retail technology group Eagle Eye said it has delivered another successful year of profitable growth, ahead of board expectations.

In a full year trading update for the year to 30 June, the group said revenues were up 36% to £43.1m and underlying organic revenue grew of 29%, excluding Untie Nots.

Adjusted EBITDA increased by 32% to approximately £8.6m.

This growing level of profits has driven strong cash generation and the group closed the year with a net cash position of £9.3m at 30 June 2023 (up from £3.6m last year), providing Eagle Eye with the continued ability to invest to support future growth.

Eagle Eye said it continues to benefit from high levels of recurring revenue, providing a strong basis for continued positive performance, and expects to report good growth in recurring revenues and client retention.

Meanwhile, it continues to expand across all key geographies during the year. Highlights include the full go-live of the five-year contract with Woolworths Group, the largest retailer in Australia, the national rollout of Asda’s new loyalty programme, the winning of multi-year contract with Morrisons in the UK and wins with a substantial Canadian retailer and IKEA in Taiwan.

The strong performance over the last 12 months across all key territories reflects the growing relevance of the Group’s AIR platform, it said, as retailers globally become increasingly aware that data driven, personalised promotions are one of the most effective ways to drive increased trade and retain customer loyalty.

In January 2023, Eagle Eye successfully completed the acquisition of Untie Nots, a rapidly growing AI-powered gamification promotions company. In the first months post-acquisition, the newly enlarged group is already seeing the benefits of working together, reinforcing the board’s belief that Untie Nots’ solution resonates well with retailers globally.

The group said its market is expanding, as retailers globally develop their omnichannel capabilities to address the rapidly changing consumer shopping behaviours, particularly in the current cost conscious climate.

“Eagle Eye expects this shift towards digitisation and personalisation to continue to accelerate and for Eagle Eye to be a beneficiary of that acceleration,” it said.

“Eagle Eye enters the new financial year in a very strong position, with a growing presence in North America and Australasia, alongside its long-standing European customers… Together with the Group’s growing ARR, profitability and cash generation, the board, therefore, looks to the future with confidence.

CEO Tim Mason commented: “This has been another outstanding year for Eagle Eye. Our tremendous team have successfully delivered across all areas of our customer strategy, in every target geography. We also completed the acquisition of Untie Nots, bringing new capabilities and fantastic talent into the Group.

“As consumers grapple with the impact of inflation and retailers seek ways to leverage the advances in AI, our ability to enable retailers to execute targeted, personalised promotions and loyalty campaigns has never been more relevant, providing us with yet more growth opportunities.

“With a growing tier-1 customer base, every time we win we are able to invest in increasing our sales and marketing organisation, enabling further growth.”

On the markets this morning, the FTSE 100 has opened flat at 7,272.9pts.

Risers include Ocado, up 2.6% to 596.6p, THG, up 2.2% to 89.1p and Hilton Food Group, up 1.5% to 668p.

Fallers include Virgin Wines, down 3.1% to 28.1p, McBride, down 1.9% to 25.5p and Imperial Brands, down 1.3% to 1,715.5p.

Yesterday in the City

The FTSE 100 started to reverse five consecutive days of losses to end Monday up 0.2% at 7,273.8pts.

Risers included tech names Just Eat Takeaway.com, up 7.1% to 1,229p and THG, up 3.6% to 87.2p.

Also on the up were PayPoint, up 2.2% to 449p, Hilton Food Group, up 2% to 658p, Deliveroo, up 1.6% to 115.3p, Nichols, up 1.4% to 1,006p and PZ Cussons, up 1.2% to 157.4p.

Fallers included Kerry Group, down 3.5% to 87.7p, Ocado, down 1.8% to 581.6p, Bakkavor, down 1.3% to 93.6p, Coca-Cola Europacific Partners, down 1.3% to €58.75, Naked Wines, down 1% to 80.1p and Sainsbury’s, down 1% to 267.9p.