The retail note - 12 July 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
3 minutes to read
- Mixed results from M&S in Q1. An improving trend in clothing and homewares (like-for-likes down -1.3%, compared to -5.9% the previous quarter) was offset by a disappointing performance in food, which saw like-for-likes decline by -0.1%, despite the inclusion of Easter and growth in the grocery market generally. The most positive figure was the 7% growth in full-price sales as the business scaled back on promotions.
- Strong figures from Sainsbury’s. For the 16 weeks ended 1 July 2017, retail sales (excluding fuel) were up 2.7% overall and 2.3% like-for-like. The core grocery business saw sales growth of 3.0%, with positive volume growth on top of inflation. Online grew by 8% in the period, whilst convenience grew at 10%, helped by the addition of ten new stores.
- Similarly robust performance figures from a number of the non-food value operators. Primark’s Q3 sales (for the three months to 24 June) grew 15% at constant currency and 21% at actual exchange rates. Despite a sluggish Easter, Dunelm reported a 17.7% rise in Q4 (13 weeks to 1 July) revenue to £240m, on like-for-like sales up 3.8%. At B&M Q1 (13 weeks to 24 June) sales were up 17.8% to £598.4million. Like-for-like sales grew by 7.3%, its best Q1 performance in three years.
Stephen Springham, Head of Retail Research:
The pattern of retail sales performance in the year-to-date continues with remarkable consistency. One weak month sees all the naysayers rise up en masse, only to be brought back to size by a strong performance the following month. True to form, a stellar June more than counterbalanced a stuttering performance in May.
The BRC figures for the five weeks to 1 July 2017 showed that total retail sales grew year-on-year by 2.0% overall, or by 1.2% on a like-for-like basis. More positive still is the fact that both food and non-food are in growth territory simultaneously. In the three months to June, non-food sales grew 1.2% (+0.9% like-for-like), the strongest rolling performance since Christmas. Over the same period, food sales grew by 4.7% (+3.6% like-for-like), the strongest three month average since February 2012.
Disappointingly, coverage of these numbers has been limited and where they have been picked up, the spin has been negative – growth is purely inflationary and weather-driven (i.e. temporary). The general narrative remains unwaveringly of consumers cutting back as inflation surpasses wage growth, even though there is limited (if any) quantitative evidence of this actually happening on the ground. These latest figures from the BRC do not support the narrative in any meaningful way. Nor will the official retail sales figures from the ONS when they are released later this month. These will be even more positive than the BRC’s, on the basis that they have been substantially higher every month for some time now.
Of course, these retail sales figures do need qualification. Yes, there is an element of inflation in there, but there is also continued positive volume growth too – in layman’s terms, the market is growing as much through shoppers buying more as it is retailers putting prices up. And from a commercial point of view, inflation is infinitely preferable to deflation. Interestingly, according to the latest data from the ONS, the highest inflation currently is among internet retailers at 3.2% - an interesting angle on the supposed price advantage of buying online.
The fine June weather did also have a positive influence on retail sales. Too often dismissed as a red herring, or rather a weak excuse for retailers’ poor trading performance, perhaps there is a growing acceptance of how the weather impacts upon spending patterns and whether our hard-earned cash finds its way into retail or other consumer spending channels.
It is difficult to determine a clear direction of travel for retail sales, which are consistent only in their unpredictability. If the monthly yo-yo pattern of the year-to-date is to continue going forward, expect a weak July, followed by a bounce back in August. I personally will be looking to the weather forecast rather than the RPI/wage inflation gap to gauge an early read of the numbers.