Retailers experienced their worst Christmas for 10 years last month as shops were hit by Brexit worries and a dramatic fall in consumer confidence.
Total sales growth dropped to zero in December for the first time since 2008, with all areas of the high street hit by a fall in sales except food, which benefited from intense competition among the major supermarket chains.
Total like-for-like UK retail sales dropped by 0.7% in the Christmas month, compared with a rise of 0.6% in December 2017.
Over the three months to December, food sales were 0.6% higher on a like-for-like basis and 1.8% on a total basis. However, even this increase was modest compared with the average trend for annual food sales growth, which is nearer 3%.
The British Retail Consortium (BRC) said the slump brought to an end a difficult year in which there were thousands of shop closures and tens of thousands of job losses across the industry.
Earlier in 2018 there were hopes that rising incomes and falling inflation would boost household disposable incomes and encourage an increase in spending, especially on big ticket items such as furniture.
However, while wage growth has pushed up to 3% and inflation has fallen, the economy has slowed and consumers have continued to keep their wallets and purses shut.
Consumers have seen their incomes squeezed by rising petrol and utilities prices in recent months while households on lower incomes, who tend to spend a higher proportion of their wages on goods in shops, have missed out on the better pay rises.
A string of warnings from large employers in the car industry and across the commercial sector as the economy slowed during 2018 have also spooked shoppers and sent figures for consumer confidence plummeting.
Barclaycard said growth in sales of essentials dipped to its lowest level since 2016, while clothing had a third consecutive month of falling sales.
The BRC warned that already struggling high streets were likely to be blighted by further shop closures during 2019 as rising costs, including increases in business rates, forced more owners into bankruptcy.
Helen Dickinson, the lobby group’s chief executive, said: “The worst December sales performance in 10 years means a challenging start to 2019 for retailers, with business rates set to rise once again this year and the threat of a no-deal Brexit looming ever larger.
“The retail landscape is changing dramatically in the UK, while the trading environment remains tough.
“Retailers are facing up this challenge but are having to wrestle with mounting costs from a succession of government policies – from the apprenticeship levy, to higher wage costs, to rising business rates.”
Dickinson complained that retailers pay 10% of business taxes and 25% of business rates while only making up 5% of the economy.
Online sales growth declined along with bricks and mortar sales but at a slower rate. It meant that the slice of sales going to online retailers edged above 31% – increasing from 29.1% of total sales in December 2017 to 31.2% last month.
Paul Martin, the UK head of retail at the survey compilers KPMG, said retailers had slashed prices to attract shoppers but had seen only modest returns for their efforts.
Without an improvement in sales margins over the coming months, shopowners will need to consider cutting outlets and staff, he said.
Jon Woolven, the strategy and innovation director at the analysts IGD, said that despite the challenges elsewhere in the retail sector, food and grocery sales enjoyed a boost in December, with an increase in sales on the previous year broadly in line with inflation.
“The desire to indulge over Christmas prevailed once more and seven in 10 shoppers said they spent extra on higher quality food last month,” he said.
“However, that mood appears fragile, with only 20% of shoppers expecting to be better off financially over the next 12 months – the lowest level of confidence by this measure since June 2017.”