Deep discounting pulls shop prices down to record low

January discounting at clothing, furniture and electrical retailers caused UK shop prices to fall for the ninth consecutive month to their lowest rate in at least seven years in December, according to figures from the British Retail Consortium (BRC). 

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Deeper than usual January discounting pulled shop prices down to their lowest rate since 2006.

Overall shop prices were down 1 per cent year on year, the biggest annual decline in any month since the BRC and Nielsen began publishing the shop price index in 2006. The fall is also down from a 0.8 per cent decline in December reflecting widespread discounting and highlighting the tough trading conditions for UK retailers despite signs that the economy is improving.

Non-food prices fell 2.7 per cent, with clothing and footwear seeing the biggest year-on-year drop at 9.9 per cent as fashion retailers offered big discounts in the January sales window following a mixed performance over Christmas. Furniture sales were down 3.6 per cent year on year, while electricals dropped by 1.8 per cent.

The report reflects the recent decline in inflation in the UK, with the consumer prices index dropping back to 2 per cent for the first time in four years in December. Although the economy grew at its fastest rate since 2007 last year, rising by 1.9 per cent, consumer spending has dropped as wages stagnate, forcing many retailers to cut prices in a bid to attract shoppers.

The BRC’s director general Helen Dickinson says: “January is always a key month for sales and promotions but discounts have been deeper and more widespread than last year and we are seeing this trend continuing.

“A number of retailers used target events to entice customers to spend. The survey also falls in a time where people are taking stock of their personal finances and reducing their consumption.”

Food inflation also fell to its lowest rate since March 2010, dropping from 1.7 per cent in December to 1.5 per cent in January. The BRC says food retailers are offering “deep and widespread” discounts as they fight over market share amid growing competition from discount and premium grocers.

Asda launched what it claimed was its “biggest-ever January value campaign”, while Morrisons is running a new year campaign called “Prices nailed down to stay down”.

Other January promotions include the return of Aldi’s “Swap & Save” campaign and Sainsbury’s “Make your roast go further” activity. The Co-operative has offered vouchers for £5 off a £20 shop and followed that up with flash sales on basic goods such as eggs, bread and milk.

Shore Capital analyst Clive Black believes that this focus on price will need to continue in order to attract shoppers that have become more “savvy” and demanding.

“Any stigma associated with discount retailing from Aldi to Home Bargains has dissipated. Such change is a structural pressure for the middle ground of retailing, both food and non-food retailers, and may require changes to trading strategies and space plans to accommodate the new market,” he says.  

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