Retail Sales: a weather-induced setback
This week’s Retail Note focuses on the official retail sales figures for March from the ONS, which were disappointing rather than desperate.
6 minutes to read
Key Messages
- March retail sales values +6.0% y-o-y
- But volumes down -3.2% y-o-y
- Inflation remains stubbornly high
- Q-o-q trends much better than m-o-m
- Q1 values (+1.8%) and volumes (+0.7%) both up
- But March m-o-m values (-0.6%) and volumes (-1.0%) both down
- Adverse weather a key factor in March’s disappointing performance
- Soft demand for ‘big ticket’ items
- Footwear, cosmetics and textiles enjoy value and volume growth
- First month of online growth since April 2021
- Online sales values grow +3.6% y-o-y
- Driven by online pure-players (+8.3%)
- Online grocery -1.6%; multi-channel non-food -0.5%
- Easter + weak comp base likely to provide boost to April figures
- Retail sales remain slave to the vagaries of the weather.
Retail sales comfortably outperforming the wider economy in March. But not quite as good as February’s numbers. Volume declines decelerating. Despite it being the wettest March since 1981. An alternative take to the media ‘doom and gloom’ interpretation of today’s retail sales figures.
The headline numbers
Of course, the majority of the focus was once again on the largely meaningless month-on-month comparisons, which saw retail sales values (exc fuel) slip -0.6% and volumes (exc fuel) decline -1.0%. These figures are significant on only one count. Due to the seasonality of retailing, we would ordinarily always expect March to be stronger than February. The fact that it wasn’t therefore does imply underperformance, albeit largely weather-induced.
The year-on-year comparisons are far more meaningful, if not equally nuanced. Retail sales values (exc fuel) grew y-o-y by +6.0% in March. Readily overlooked / dismissed as a metric (‘it’s not “real” growth’), this is the figure that ultimately feeds into GDP and provides a straight answer to the question as to whether the UK consumer is still spending (and +6.0% well and truly underlines the fact that we are).
Retail sales volumes (exc fuel) declined y-o-y by -3.2%. While this is tangibly better than the -6% to -7% monthly declines we witnessed from April 2022, it is nevertheless a disappointing reverse on the trend we saw in the first two months of this year. Volumes declined by -3.0% in February (revised from -3.3%). Realistically, we are unlikely to see volumes return to positive growth until the second half of the year.
A disappointing end to a strong quarter
Obviously, with the March figures come the Q1 numbers. And these make for infinitely better reading, a reflection of the strength of January and February, offset only partially by the disappointment of March.
Q1 retail sales values (exc fuel) grew by +5.6% (vs KF forecast of +5.5%), while volumes (exc fuel) declined by -3.8% (vs KF forecast of -3.5%).
For what they are worth (not much, in my professional opinion), quarter-on-quarter retail sales values (exc fuel) grew by +1.8% and volumes (exc fuel) were also up +0.7%. The associated implication that we bought and spent more in the January – March period than we did over Christmas (October – December) is, of course, ludicrous and casts serious aspersions as to the veracity of the ONS’ attempts at ‘seasonal adjustment’.
Tales of the unexpected
Sub-sector performance was as mixed as ever. As we might expect in a downturn, demand was generally soft for ‘big ticket’ items. But other sectors continue to perform strongly, some to gravity-defying proportions.
Supermarkets continued to enjoy stellar value growth (+9.9% y-o-y), although volumes declined by -3.5%. The implied rate of inflation of 13.4% is in keeping with other figures reported by the ONS. Interestingly, the more niche (and generally more upscale) ONS sub-sector of specialist food stores saw a massive surge in demand (+29.7% value, +11.3% volume). A flight to more expensive specialists is probably the last thing we would expect in times of a ‘cost-of-living crisis’, but this is what the ONS figures suggest.
Non food sales values grew by a more modest +2.6% (volumes -3.7%). ‘Big ticket’ sectors such as electricals (values -9.5%, volumes -11.5%), carpets (-4.0%, -12.5%) and DIY (-7.7%, -14.9%) were some of the main drags on non-food performance. The figures for garden centres (-8.4%, -15.5%) give credence to the fact that the weather was a strong influencing factor. And the fact that second hand goods shops (which would include charity shops) were the worst performing ONS category of all (-14.4%, -19.8%) further challenges the notion that consumers necessarily trade down during times of supposed economic crisis.
At the opposite end of the performance spectrum, footwear continued its stellar run (+30.7%, +23.4%), as did cosmetics (+25.7%, +13.3%) and textiles (+8.8%, +3.3%). All three categories continue to record both value and volume growth i.e. we’re buying more and spending more. Clothing wasn’t a million miles away from achieving the same feat, with values up +9.1% and volumes flat rather than declining.
Online – a turning point?
Last month we raised the question as to whether we were finally seeing some green shoots in the online market. On the evidence of March’s figures, we appear to be.
All online sales grew +3.6% year-on-year (+0.8% month-on-month). This was significant as it was the first month of positive growth since the final lockdown was lifted in April 2021. But there are some interesting nuances in the numbers, with pure-players for once significantly out-performing multi-channel operators.
Online grocery sales declined by a further -1.6% year-on-year and online grocery penetration reduced to just 8.2%. This is not much higher than pre-pandemic levels and rather than just fanciful, predictions of penetration rates of 25%+ made during the pandemic now look plain ridiculous.
Online non-food sales also declined year-on-year, albeit by a more modest -0.5%. This figure refers to online sales made by multi-channel operators and while there was strong growth in textiles/clothing/footwear operators (+11.3%), this was offset by household good stores (-1.3%). In contrast, online pure-players had a very good month (+8.3% year-on-year).
A bottoming out of the decline in online demand, or a temporary flight in response to adverse weather? The proof will be in the pudding over the next few months.
The outlook
As we flagged last month, the figures for March were always going to be challenged (‘the weather has hardly played ball either and whatever economists may say, this definitely has a profound influence on retail sales patterns (particularly in their obsession with month-on-month trends). But the strong performance in February, plus a demanding year-on-year comp base (March 2022: values +8.3%, volumes +0.8%) doesn’t inspire confidence that the numbers will be great’).
What will the April figures bring? A number of key ‘push and pull’ factors are in play. Easter will obviously provide a boost to overall spending, although this shouldn’t really be a factor in the year-on-year comparisons (Easter falling in April for two consecutive years). It will obviously be a factor in month-on-month comparisons, although the ONS is likely to ‘seasonally-adjust’ as much of this gain out of the equation as it can.
The weird year-on-year comp base is also likely to heavily influence April’s figures. April last year was exceptionally weak, with values growing by just +0.1%. It also marked the onset of high inflation, with volumes tumbling -7.6% as a result. This should positively distort the numbers this time around (‘seasonal-adjustment’ allowing…)
But, of course, there is also the weather. Barring a dramatic turnaround in the final week of the month, there’s sadly not been too much to write home about on that front.