Promotional activity continued into August

Promotional activity continued into August

UK shoppers continued to benefit from falling clothing and footwear prices in August, thanks to continued promotional activity – a trend that is expected to continue in the coming months. 

Deflation in the clothing and footwear category accelerated to 6.8% in August from 6% in July, according to the monthly BRC-Nielsen Shop Price Index. The main contributors to this decline were men's and women's clothing, while inflation in clothing accessories slowed sharply. 

All other categories remained at the same levels as July. On a month-on-month basis prices fell 0.9%, compared with a 0.6% fall in July. This was the deepest monthly decline since January.

Overall, shop prices reported deflation of 2% in August from a 1.6% decline in July, above the 12-month average of 1.9%.

Helen Dickinson, chief executive of the British Retail Consortium (BRC), says the devaluation of sterling in wake of the Brexit referendum will put upward pressure on shop prices. 

However, she adds: "That's likely to take several months to properly feed through, given that retailers won't feel the brunt of the cost increases until existing contracts with foreign suppliers come to an end. Even then, retailers will have to make a decision about when and how much to pass onto consumers. 

"Given the strength of competition in the market, and if the economy softens in line with predictions, any pass through may be more limited than implied by the exchange rate movement. As far as they can, retailers will endeavour to mitigate impacts by looking for productivity gains in their own businesses, rather than compromising on the value they are offering to consumers."

Mike Watkins, head of retailer and business insight at Nielsen, says unpredictable weather and a change to consumer sentiment has resulted in retailers cutting prices or increasing promotional activity in the last few weeks to help top line sales growth.

"It's of no surprise that shop price deflation is lower. Once again it is clear there is currently no inflationary pressure coming from retail and discounting looks set to be a catalyst to stimulate demand in the coming months."