The Retail Note | Christmas: fiction and fudge triumph over fact
8 minutes to read
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This week’s Retail Note analyses (criticises) the official retail sales figures for December from the ONS, which stretch credibility and send out erroneous and dangerous messages.
Key Messages
- Xmas far from the disaster that is being reported
- YoY retail sales values (NSA) +5.7% in Dec
- Seasonally-adjusted YoY growth of +3.5% still respectable
- YoY Dec volumes +5.3% (NSA), +2.9% (SA)
- Reported MoM volume decline of -0.3% misleading
- Total spend in Dec of £60.4bn
- +38.6% growth on Nov’s £43.6bn
- Actual MoM volume growth of +37.5% vs reported -0.3%
- Strong Xmas for cosmetics, sports/toys, books, DIY
- Soft demand for clothing, PCs & telecoms, furniture
- Grocery figures disappointing
- Food YoY vals +0.4%, vols -1.2%
- Deeply at odds with grocers’ own figures
- Misreporting very damaging for sentiment towards retail.
£60bn is a lot of money. It’s about the same as total annual GDP in a country such as Croatia or Uruguay. It’s also the amount the humble UK consumer spent in shops/online in December.
£144bn is even more money. It’s getting on for the total annual GDP in a country such as Hungary or Kuwait. It’s also the amount the humble UK consumer spent in shops/online in Q4, the whole Christmas season.
£60bn and £144bn. Hold that thought amidst all the noise about last Christmas being a disaster. Sadly, fact is being lost amidst all the fudge produced by the ONS and the inevitable fiction that arises in the media as a result.
Facts
Year-on-year (YoY) retail sales values grew by +3.5% in December on a ‘seasonally-adjusted’ basis. On a ‘non-seasonally adjusted’ basis, this figure was higher still at +5.7%. Translation: we spent +5.7% more money in December 2024 than we did in December 2023. The ONS adjusted this figure down +3.5% to reflect seasonal differences between the two years.
Year-on-year (YoY) retail sales volumes grew by +2.9% in December on a ‘seasonally-adjusted’ basis. On a ‘non-seasonally adjusted’ basis, this figure was higher still at +5.3%. Translation: we bought +5.3% more stuff in December 2024 than we did in December 2023. The ONS adjusted this figure down +2.9% to reflect seasonal differences between the two years.
Why the ‘seasonal-adjustment’? A very valid question at any time, but one that has a slightly more plausible explanation this time around. The late timing of Black Friday last year meant that the full effect was felt in the December figures rather than the November ones – although with Black Friday starting ever earlier, surely the impact was distributed/dissipated across both months, even possibly October too?
All the more reason to look at the hard facts of Q4 as a whole, rather than just December in isolation. Year-on-year (YoY) retail sales values grew by +1.5% in Q4 on a ‘seasonally-adjusted’ basis (+1.8% NSA). Year-on-year (YoY) retail sales volumes grew by +1.3% in Q4 on a ‘seasonally-adjusted’ basis (+1.6% NSA). Limited ‘seasonal adjustment’ required here as everything should be like-for-like (half term, Black Friday, Christmas etc).
Take a step back: retail spending grew by +1.5%/+1.8% in Q4, with ‘real’ volume of growth +1.3%/+1.6%. Retail sales did not fall, they grew. And not just that, they grew in the face of a stagnating UK economy generally. Over and above that, implied levels of inflation were just +0.2%. Comfortable levels which are not onerous to the consumer and are good for the economy.
Fudge
Sadly, these facts are given scant mention in the ONS release. The headline narrative reads: “Retail sales volumes (quantity bought) are estimated to have fallen by 0.3% in December 2024, following a small rise of 0.1% in November 2024 (revised down from 0.2% in our last publication). Falls in supermarkets were partly offset by a rise in non-food stores, such as clothing retailers, which rebounded from falls in recent months. Looking at the quarter, sales volumes fell by 0.8% in Quarter 4 (Oct to Dec) 2024 compared with Quarter 3 (Jul to Sept) 2024 but rose by 1.9% compared with Quarter 4 2023.” Not much that stands up to any level of fact-checking.
Translation: we bought -0.3% less stuff in December than we did in November, when we only bought +0.1% more stuff than we did in October. And -0.8% less in Q4 than in Q3. Spending was down in supermarkets, but clothing retailers did well.
This bears absolutely no relation to reality. As always, the issue lies in the extreme limitations of month-on-month and quarter-on-quarter comparisons. Given the extreme seasonality of retailing, these will always be largely (I think completely) meaningless. But so hell-bent are the ONS and the economist community with reconciling retail sales data with wider economic metrics (which aren’t seasonal) such as GDP, that they undertake two layers of ham-fisted adjustment – seasonal and calendar.
The folly of this is screams out in the latest ONS release; “Looking at our non-seasonally adjusted data (which doesn't adjust for Black Friday being in the December 2024 reporting period or usual Christmas spending in December) sales volumes rose by 10.0% over the month to December 2024.” In other words, the ONS try to exclude Christmas from the December figures – unbelievably. So, effectively, they are trying to present a picture of demand without Christmas. By way of analogy, this is a bit like a football team winning a game 5-0, only to be told afterwards that it didn’t count because they had better players and the result has been reversed to a 0-1 defeat. Ridiculous.
But, of course, that Christmas spend did happen and must be accounted for somewhere. If previous years are anything to go by, a lot of it will be shunted into the January figures. And suddenly, as per last year, January appears a spectacular month, with a huge month-on-month increase. The implied notion that we spent loads more in January than we did in December is the ultimate in ridiculousness.
This fudged folly can be quantified by analysing the ‘strictly for geeks only’ ONS Retail Sales Pounds Datasheets. These contain the raw, unadjusted, non-doctored data that is manipulated/adjusted to get to the main Retail Index Data.
The rock solid facts. Retail sales values (NSA) were £60.4bn in December versus £43.6bn in November. We spent +38.6% more in December than we did in November. Retail sales volumes (NSA) were £56.1bn in December versus £40.8bn in November, a +37.5% increase.
An actual +37.5% increase reported as a -0.3% decrease? Need I say more?
Fiction
All the fudging aside, the sectoral breakdowns of category performance provided the usual weird and wonderful mix. Again, some of these figures are incredible – sadly, in the sense of being unbelievable rather than outstanding.
Chief amongst these was the performance of grocery. Putting aside the meaningless/ridiculous MoM figures (volumes down -1.9%), YoY values were up by a meagre +0.4%, with volumes down -1.2%. Compare this with the narrative emanating from the grocers themselves, with Tesco (+3.8%), Sainsbury’s (+3.5%), Aldi (+3.4%), Lidl (+7%), M&S (+8.7%) and Ocado (+17.5%) all reporting value growth way, way ahead of this, as well as underlying (but unquantified) volume growth. While not the total market, these six players make up around two-thirds of it. On this basis, the ONS figures simply cannot be right. Kantar put value growth at +2.1% and intuitively, value growth of 2-3% and volume growth of 0-1% feels much closer to the mark.
The knock-on effects of this can be damaging. “Shock drop in supermarket food sales hits pound” was the alarmist headline on the BBC website earlier today. Wow. Fake news undermining the value of sterling. But the BBC fact-checkers have obviously since stepped in and the headline has since been revised to “Shock drop in shop sales adds to fears to UK economy”. While less dramatic than the original, the story is essentially the same. Misreporting ONS figures isn’t going to do anything for sentiment towards the retail sector. And, as explored in last week’s Retail Note, this is a classic example of retail being exploited to support agenda-driven media narrative.
As ever, performance in non-food was very variable. Clothing was called out by the ONS as being a strong performer. Really? December YoY clothing retail sales value were totally flat (0.0%) and volumes were down -0.9%. The Q4 figures were worse still (values -2.7%, volumes -4.0%). Fashion retailers had a torrid Christmas.
YoY non-food sales as a whole grew by a healthy +6.8% (volumes +6.7%). Textiles (vals +50.0%, vols +42.2%), cosmetics (+20.4%, +18.7%), sports & toys (+32.7%, +33.0%), books (+10.6%, +8.0%) and DIY (+8.5%, +8.4%) all enjoyed strong Christmas trading. But demand was far weaker for PCs & Telecomms (-7.6%, -2.3%), chemists (-1.4%, -5.3%) and furniture (-4.4%, -7.3%).
Some perspective
As we’ve said all along, whatever the prevailing narrative, Christmas was decent for the retail sector, neither outstanding nor a disaster. The well-documented Autumn Budget cost pressures remain and ultimately remain a huge headache for retailers. But they are operational issues, quite separate from the much more fundamental factor of underlying consumer demand.
This Note is highly critical of the ONS’ treatment and messaging of retail sales – the eagle-eyed may have picked up on this. There is no suggestion that the ONS is agenda-driven, nor trying to manipulate the numbers for any particular gain. The motive behind the adjustment is not just to align retail sales with other economic metrics, but also to try and give a true picture of underlying consumer demand, which avoids +37.5% monthly spikes. The issue is that their adjusted view gives a very distorted perspective as to what is actually happening on the ground.
As supporters of retail, what would we like to see from retail sales? Value and volume growth, the former outstripping slightly the latter, with implied low levels of inflation. Q4 values +1.5%, volumes +1.3%, implied inflation +0.2%. Not perfect – could be a bit higher – but not a million miles away from what we would like to see.
And, whatever the BBC may say, surely not bad enough to debase sterling? Some perspective, please.
Download the UK Retail Sales Dashboard - December 2024