Retailers prepare for ‘exceptionally tough’ golden quarter after Budget

The golden quarter is off to a slow start and things are only set to get tougher for retailers over Christmas, according to fresh data.

In-store sales grew by 1.7 per cent year on year in October, while total sales – both in-store and online – grew 4.1 per cent, according to BDO.

Whilst the figures initially suggest optimism, BDO said that comparatives from an exceptionally poor golden quarter in 2023 “mask the true performance” of the sector.

“This growth is based on the disastrous sales figures recorded in October 2023,” Sophie Michael, head of retail and wholesale at BDO said. “Sales volumes have not recovered to 2022 levels”.

“With this being the most important time of the year for the sector, if sales figures continue to follow this trajectory the industry is set for an exceptionally tough festive period,” Michael added.

A survey from the British Retail Consortium (BRC) at the end of September found that a third of consumers expected to spend less on clothes over the golden quarter, and around a quarter expected to spend less on electronics, beauty and entertainment.

Just one in six consumers think that the economy will improve over the next year while half think it will get worse, according to Which?

Retail faces extra £2.5bn cost burden

Michael said that measures introduced in the Budget will also affect retailers.

These include the 1.2 per cent increase to employer’s National Insurance contributions, a larger-than-expected rise in the National Minimum Wage and the reduction in the business rates relief available, taking effect from April 2025.

BDO predicted that the budget policies, plus the additional costs from implementing the new Employment Rights bill, will put an additional cost burden on the sector of more than £2.5bn annually.

“This is a huge hit for a low-margin sector and adds to the risk of retailers disappearing from our local communities and shifting more operations online,” Michael said.

While the much-maligned business rates system is set to be reformed, which should give some relief to high street shops, these improvements will not come into play until 2026.

Online spending beats in-store

Online sales growth has outstripped in-store sales for nine out of ten months this year, according to BDO.

“Online discounts have likely had an impact on this consumer behaviour, eating further into squeezed profit margins,” Michael said.

In September, total retail sales grew by 4.7 per cent year on year and online sales were up by 11.6 per cent.

However, BDO warned that the shift to online discounts would only benefit retailers in the short term.

“The reliance on discounted online sales to drive growth is not only putting huge pressure on retailers’ margins, but it is also a very costly way of doing business because of the high level of returns. It simply isn’t sustainable,” Michael said last month.

The shift also pulls Brits away from high streets, with high street footfall stubbornly below pre-pandemic averages – total UK retail footfall fell by 0.4 per cent in August year-on-year, the best monthly figure for more than a year.