Inflation and food purchases drove the value of Scottish retail sales slightly beyond pre-pandemic levels for the first time in March, but the outlook for the sector remains concerning as consumers face a severe squeeze on spending power.
Total sales increased by 0.6 per cent last month, led by 6% growth in food sales as consumers focused on eating at home rather than eating out. This outweighed a 3.9% decline in non-food sales.
The figures from the Scottish Retail Consortium (SRC) are all based on comparisons to March 2019 to eliminate distortions created by the pandemic. The beginning of the Covid outbreak in March 2020 marked the start of the closure of non-essential stores, and Scottish retail was again in lockdown in March 2021.
In addition, the figures are not adjusted for inflation. Ewan Macdonald-Russell, head of policy at the SRC, said if the figures were adjusted then the value of sales would have declined. Even so, it was a strong performance compared to recent months.
“This is the first time sales have been close to pre-pandemic levels since the Covid crisis hit and coincides with the removal of nearly all Scottish Covid restrictions,” he said. “However, these improved figures are at least in part a result of rising shop prices as retailers grapple with a host of inflationary costs.”
READ MORE: Scottish economic recovery in jeopardy as prices spiral further
Latest figures from the British Chambers of Commerce show that overall shop prices were up by 2.1% in March, with food prices 3.3% higher and the cost of other items up by 1.5%. This is on the back of substantial increases in input prices for energy, foodstuffs and other raw materials.
The period covered the first Mother’s Day in three years where Scots could visit family, which supported food sales and boosted fashion and beauty lines. Retailers also noted a slight easing in supply challenges which helped furniture and electrical sales.
“Whilst these sales figures are encouraging, the economic storm clouds continue to concern retailers,” Mr MacDonald-Russell said.
“Costs continue to rise and will worsen in April as non-domestic rates bills return for many retailers. Rising inflation means prices are likely to continue rising, which will put immense pressure on households’ discretionary spending which has significant implications for many retailers.”
READ MORE: UK economy stalls with concerns that growth may shift into reverse
The 0.6% increase in total sales compared to a 0.3% rise March 2019, when economic activity was weakening amid uncertainty about the unfolding Brexit process. The latest figure was a significant improvement on both the three-month and 12-month average decreases of 3.2% and 7.3% respectively.
Sales were 0.7% higher on a like-for-like basis compared to the same period in 2019, when they decreased by 0.2%. This compares to a three-month average fall of 2.1% and a 12-month average decline of 4.7%.
The 6% increase in total food sales was a sharp rebound from the same period prior to the pandemic when they fell by 0.2%. However, it was below the Scottish three-month average of 6.2%, and the three-month UK growth average of 9.2%.
The 3.9% decline in total non-food sales compared to an increase of 0.7% in March 2019. This was an improvement on the three-month average decrease of 11% and the 12-month average decrease of 16.9%.
READ MORE: Squeeze on real incomes could be the painful solution to rampant inflation
Paul Martin, UK head of retail at KPMG, said Scotland’s shop owners would be glad to see sales returning to pre-pandemic levels for the first time since the crisis began.
“While this is promising, it’s too early to call this a return to normality given the cloud of geopolitical and macro-economic uncertainty which has the potential to dampen consumer confidence and spending power in the months ahead,” he said. “As households feel the pressure, retailers are facing their own battle with rising costs and inflation, and are walking a tightrope between absorbing rising costs themselves or passing these on to consumers.
“Successful retailers will continue to maintain a clear understanding of their customer, what they want to buy and how, whilst balancing attention on areas that can yield cost and efficiency gains. It remains to be seen whether or not consumers will reduce physical and virtual spending to offset rising household bills and reduced household incomes.”
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