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What’s behind the ‘V-shaped’ recovery in retail?

The rapid recovery of UK retail masks divergent fortunes in different parts of the sector, but which have been the winners and losers in the first half of 2020?

The Centre for Retail Research has found that almost 125,000 retail jobs were lost in the first eight months of 2020, and almost 14,000 shops closed permanently, due to the lower footfall, lower spend and acceleration in the shift to online caused by the coronavirus (COVID-19) pandemic. Excluding grocery, there was an almost 40% decline in weekly retail sales between January and April this year, which makes the worst shocks of the global financial crisis pale in comparison.

Yet, just three months later, the ONS reported a 3.7% year-on-year rise in retail sales in July, the first full month that non-essential physical stores were open across the UK. On a seasonally adjusted value basis excluding fuel, average weekly retail sales were the highest ever recorded, exceeding pre-lockdown levels. In fact, apart from public sector output, which has remained consistently high throughout the lockdown period, the wholesale and retail trade was the only part of the UK economy to have completely recovered by July, according to the ONS’s latest GDP estimates.

Average weekly retail sales

These findings may not be far-fetched when you consider that UK consumer confidence has remained resilient to date, well above the levels seen in the last recession. The furlough scheme and other government stimulus has cushioned the blow for many, and, for the lucky ones, going out less and cancelled holidays has freed up cash to spend in stores.

And, while the pent up demand that caused an initial bounce back in footfall may not have been sustained, there have already been positive trading reports from a number of retailers.

So, how does the apparent V-shaped recovery square with the travails that the retail sector is currently facing?

Not all categories have recovered

Weekly retail sales by category

That grocery retailers, which account for over 40% of retail sales, have continued to outperform may not be a surprise, but household goods stores are also now trading comfortably ahead of pre-lockdown levels. Under ONS definitions, that includes furniture, DIY and electrical appliance stores, and tallies with the post-lockdown performance reported by a number of retailers over the past two months.

Even accounting for some pent-up demand, if you believe that consumers will be spending more time in the home in coming years, there’s no reason for this trend not to continue. After grocery shopping, “improving home” was the second most likely category where consumers expect to spend more post-pandemic according to our May survey.

The broad category of ‘other speciality retailers’, ranging from bookshops and garden centres to sports goods retailers and computer shops, has also matched pre-lockdown levels, as leisure activities at or closer to home replace the summer holidays that have been cancelled for many people.

At the other end of the scale, fashion was already the hardest hit category during lockdown with April sales 70% below pre-pandemic levels. Unlike the categories mentioned above, it has been the slowest to recover, with sales still more than 25% below pre-pandemic levels, and the rate of recovery seeming to slow down even as more shops and leisure activities opened in July.

By comparison, fashion was one of the most resilient categories coming out of the last recession, and much more so than DIY, furniture and homewares. This time around, the tables have turned. The question is whether this will just be a lost season, or whether it’s symptomatic of a more structural shift away from the category, whether because of less demand for occasionwear and formalwear, or greater concern about sustainability and fast fashion.

Change in category spending post

The great channel shift accelerates, but is there still a role for stores?

Proportion of retail sales online

While the online channel took 7 years to get from 10% of retail sales to 20% in February 2020, it took just two months to get from 20% to 30% in April, a figure many observers thought we would not see until the latter half of the 2020s.

While online retail has fallen back from its peak of 33% in May, there seems to be little sign of the structural trend reverting completely. In June, online sales were roughly double pre-pandemic levels in every category except fashion. Even in July, footfall in shopping locations was still over 40% lower than last year, despite the record levels of overall retail sales.

Perhaps more interesting is what this means in practice for the physical stores on our high streets.

The good news for household goods and speciality retail stores is that the trajectory they followed after reopening in June and July suggests that they are on their way to recovering pre-pandemic in-store sales levels. The decline in online sales in those categories in July indicates that, at least in some cases, there’s still a preference to transact in store.

Similarly, the rapid growth of online grocery retail in recent months doesn’t seem to have affected demand in physical stores, which, despite queues and social distancing, are still trading at over 96% of pre-pandemic levels. The death of the traditional supermarket looks to be exaggerated at least for the moment.

More worryingly, for fashion retailers, physical sales are still almost 40% less than pre-pandemic levels. Interestingly, online sales growth actually accelerated in June, and continues to be a third above pre-pandemic levels in July despite physical shops being fully open that month. So not only are bricks-and-mortar fashion retailers having to contend with lower overall demand, but also a channel shift that is more pronounced than every other category – even grocery.

Weekly online sales by category
Implied weekly instore sales by category

Flash in the pan, or a sign of things to come?

While retail may look like it has experienced a V-shaped recovery, it’s clear that the rosy headlines hide a multitude of sins under the surface. With risks of further outbreaks, local lockdowns and rising unemployment far from receding, further seismic shifts may yet occur.

However, what this data shows is that there is no going back for reduced demand in some categories and increased online penetration in others. That’s good news for some retailers, but further high street casualties may be inevitable if they’re unable to adjust their operating models fast enough.

If you are interested in this insight and would like to find out more about our analysis or how we can help you to understand recovery in your area, please contact Lisa Hooker

Contact us

Kien Tan

Kien Tan

Director, Retail Strategy, PwC United Kingdom

Tel: +44 (0)7880 552726

Lisa Hooker

Lisa Hooker

Leader of Industry for Consumer Markets, PwC United Kingdom

Tel: +44 (0)7802 882562

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