The Retail Note - Retail sales: reason to believe
This week’s Retail Note focuses on the March / Q1 retail sales figures from the ONS, which were defiantly strong.
6 minutes to read
To receive this regular update straight to your inbox every Friday, subscribe here.
Key Messages
- Three consecutive months of strong retail sales growth
- MoM value growth +0.4% vs economist consensus -0.4%
- YoY retail sales values +3.8%, volumes +3.3%
- Implied inflation of 0.5% lower than headline CPI (2.6%)
- Q1 retail sales values +2.9%, volumes +2.0%
- But declining grocery vols and non-food deflation remain concerns
- Grocery sales (vals +1.0%, vols -1.4%)
- Non-food sales ostensibly stronger (vals +5.8%, vols +6.4%)
- But deflation a worry in many non-food categories
- Jewellers, off-licences, garden centres standout categories
- Clothing rebounds (vals +2.6%, vols +3.4%), but deflationary
- Online rallies during month (+5.4% YoY)
- Online penetration increases by +40bps to 26.8%
- April likely to be stronger still for demand
- But April also saw onset of major cost increases for retailers.
Decent. Actually, more than decent. Dare I say, good even? Cutting through all the usual misrepresentation of the figures, today’s retail sales figures were generally strong, smashing all economist forecasts to smithereens. But not without a few funnies and worries to keep my job interesting.
Not just growth, accelerating growth
Year-on-year retail sales values (exc fuel) grew by +3.8%, volumes were up +3.3%, implied inflation was a healthy and comfortable +0.5%. All good, nay great. For retail sales values, this marked an acceleration on the preceding two months (Jan: +2.1%, Feb: +2.5%) and was the best monthly performance since late 2023, when hyper-inflation was still a thing. For retail sales volumes, this was the best monthly performance since Feb 2022, when figures were still COVID-distorted.
Of course, the positive narrative from the ONS was based on the economist-friendly but largely meaningless month-on-month figures. According to ONS estimates, retail sales volumes rose by +0.4% in March 2025. This follows a rise of +0.7% in February 2025 (revised down from a rise of +1.0% in the last bulletin). Economists got it woefully wrong again. Rather than growth of +0.4%, consensus forecasts had suggested a decline (repeat, decline) of -0.4%. Cue a predictable chorus of ‘it cannot last’ rather than admission of getting it horribly wrong.
The UK consumer far less sensitive to global geo-political unrest than we are led to believe? Joe Public far less preoccupied by tariffs when going about their daily business? Quite possibly.
Performance by sector
Whilst the headline stats were strong, the underlying figures were not universally positive. There are two fundamental concerns: ongoing volume declines in grocery and deflation in many non-food categories.
Grocery sales remain surprisingly subdued. Grocery sales values grew YoY by just +1.0%. With grocery inflation running at an implied rate of 2.4%, volumes were down YoY by -1.4%. But these figures remain at odds with recently-reported figures from the two largest players in the market, Tesco (FY UK food like-for-like +4.9%) and Sainsbury’s (FY grocery sales +4.5%), both also reporting significant volume growth. Yes – both are outperforming the market and growing market share, but by this much? The ONS figures for grocery continue to look light.
On the surface at least, non-food sales were much stronger. Non-food sales values grew +5.8%, while volumes were ahead +6.4%. These were the strongest monthly growth figures since COVID-distortions in early 2022. The implied rate of deflation of -0.6% stands in stark contrast to all the deafening narrative about inflationary pressures, both now and going forward.
Deflation was rife in a number of non-food categories, particularly PCs & Telecomms (-7.0%), Music & Video (-6.6%), DIY (-3.4%), Carpets (-2.4%) and Electricals (-1.8%).
The usual variances of performance by non-food sub-sector. For the second consecutive month, the best performing sub-sector was Jewellery (values +16.2%, volumes +12.4%). Other sectors to achieve both value and volume growth and remain in inflationary territory included Off-licences (+16.0%, +12.5%), Garden Centres & Petstores (+15.3%, +15.1%), Furniture (+5.2%, +4.6%) and Footwear (+3.5%, +3.5%). At the other end of the performance spectrum, textiles had another bad month (-34.3%, -33.7%), while Charity Shops (-5.4%, -5.8%) and Cosmetics (-4.7%, -6.1%) also toiled.
A mixed month for Clothing. YoY values grew by +2.6%, with volumes up +3.4%. This marked the best monthly performances since Sep 2024 and Jan 2023 respectively. Although way short of the figures suggested by the British Retail Consortium (-10.3%), Clothing was once again deflationary according to the ONS (-0.8%). A worrying sign of retailers having to cut prices in the face of weak consumer demand. And so much for the huge price hikes that we are all anticipating.
Another rallying month for online after a weak Jan. YoY online sales grew by +5.4% (+2.0% MoM). As a result, online penetration rose from 26.4% to 26.8%, well within the ‘new norm’ monthly fluctuation bands of 25% - 28%.
Wider context
January was strong, February stronger, March stronger still. It’s always dangerous to read too much into one or two months’ retail sales figures, particular seasonally quiet months. But three consecutive months can’t be dismissed as a fluke. For Q1 as whole, YoY retail sales values (exc fuel) were up +2.9%, while YoY volumes were ahead by +2.0%, with implied inflation <1% (0.9%). I think any of us would have taken that at the beginning of the year.
March was always going to be a telling month. Without the stimulus of Easter (which fell late this year), there was always a risk of it being a dud month. But these figures prove otherwise, the decent weather playing no small part. April’s figures stand to be stronger still, the combination of Easter and (largely) good weather likely to significantly bolster demand. But, of course, there’s always the risk that this isn’t apparent in the ONS release, given that they will no doubt look to clumsily adjust the figures down to “remove the impact of Easter”. On a month-on-month basis, there is no conceivable way that spend will be down in April – yet don’t be surprised if the ONS suggest otherwise.
‘It can’t last’. Or can it? There is no doubt that the retail sector is now facing a deluge of new pressures through the ‘triple whammy’ of increased national insurance employer contributions, rising minimum wages and reduced business rates belief. All announced back in the Autumn budget, these challenges feel a bit like old news, but the reality is that they only came into full force at the beginning of April. In this respect, Q1 was effectively the last few months of a honeymoon period for the retail sector.
But there is a massive distinction to make. These pressures are cost-based, retail sales are demand driven. The two are mutually-exclusive. The wall of costs will impact retailers, but there is minimal correlation with consumer demand. Treat the two as entirely separate entities.
And maybe – just maybe – your average UK shopper is impervious to noise about global tariffs.