RETAIL

Retail sales Christmas 2022 – how did everyone get it so wrong?

This week’s Retail Note focusses on the official retail sales figures for December from the ONS, which are surprisingly downbeat and contradict virtually all other retail newsflow.
Written By:
Stephen Springham, Knight Frank
9 minutes to read
Categories: Property Sector Retail World Regions UK London

Key Messages

  • ONS retail sales figures stretch credibility
  • Significant “seasonal adjustment” (SA) distorts numbers
  • SA retail sales values in Dec +3.3%
  • SA retail sales volumes in Dec -6.1%
  • But “non-seasonally adjusted” (NSA) figures paint a very different picture
  • NSA retail sales values in Dec +6.0%
  • NSA retail sales volumes in Dec –2.9%
  • SA food sales +6.6%, non-food +5.8%
  • Online (-8.9%) again the main drag on performance
  • Strong demand for footwear, clothing, cosmetics and furniture
  • DIY, electricals and jewellery far more challenged
  • FY 2022: retail sales value growth (exc fuel) of +4.8%
  • Second best annual value growth since 2004
  • Higher growth in 2022 than GDP
  • But FY 2022 retail sales volumes down -5.9%
  • Worst annual volume performance on record
  • Weaker consumer demand in Jan/Feb anticipated, but not a disaster
  • Inflation set to ease, but at a slow rate
  • Retail sales volumes unlikely to return to positive growth until Q4.


Very dubious figures from the ONS today on Christmas retail sales. They are wildly at odds with the earlier reported ones from the BRC and with virtually all retailer reporting over the festive season. One suspects this is the case of overly-aggressive “seasonal adjustment” and the figures will probably be revised considerably (but quietly) in the months to come. The deeply-buried “non-seasonally adjusted” (NSA) figures tell a very different (and better) story than the doctored “seasonally adjusted” figures reported.

December in isolation

The figures and general tone from the ONS certainly put a dampener on the general narrative that Christmas was strong. Retail sales volumes were always going to be negative, but the level of value growth and the month-on-month trends stretch credibility.

In terms of headline figures, retail sales values (exc fuel) in December were up +3.3% year-on-year (vs KF forecast of ca. +3%). In other words, we spent +3.3% more than we did in December 2021 and as flagged in previous Retail Notes, this was a “record” month for overall retail spending. But this figure was somewhat disappointing given what the BRC had led us to believe (+6.9%) and constant newsflow of robust sales growth at many of the major retailers. I would happily have forgone being close in our forecast for the actual figure to have been much higher.

And the ‘headline’ figure was one of the more positive in the release. Given ongoing double digit inflation, retail sales volumes (exc fuel) were predictably negative. Declining -6.1% year-on-year (vs KF forecast of ca. -6%). As previous flagged, a “record” at the opposite extreme.

Less telling (but always the focus of the economist community) the month-on-month figures make for even worse reading, but simply aren’t credible. Retail sales values (exc fuel) were down -1.0% in December, with volumes down -1.1% (and these are the frankly ridiculous numbers being widely quoted in the media). In effect, we bought and spent -1% less in December than we did in November. But on top of that, retail sales volumes were also down -0.5% in November too. On this basis, this would make October the peak month for the wider festive period. Absolute nonsense – how many retailers are reporting that October was stronger than December? Hardly any, if any at all.

The only way to make any sense of this is to delve deeply into the full 104-page release to find the non-seasonally adjusted (NSA) / non-rigged numbers. On pages 59 and 39 respectively, NSA retail sales values (exc fuel) increased by +6.0%, while NSA retail sales volumes declined by a more modest -2.9%. The unadultered numbers are infinitely more credible than the ONS’ ham-fisted sanitized versions.

Performance by sub-sector

The suspect nature of the headline data casts aspersions as to the veracity of the sub-sector figures. This caveat aside, there was the usual wider range of divergence in performance of retail sub-sectors (NB all the figures quoted are “seasonally adjusted”).

Grocery sales values were up +6.6% y-o-y in December (volumes -6.1%), while non-food spending was up +5.8% (volumes -5.3%). Food up +6.6%, non-food up +5.8% yet total retail sales up just +3.3% indicates another hefty month of decline for online (non-store values -11.4%, volumes -16.2%).

Which were the standout sectors over Christmas? The straight answer: fashion, footwear, cosmetics and (unbelievably) furniture. All four of these sub-sectors had the distinction of enjoying both value and volume growth i.e. we bought more and spent more. Footwear sales were up +27.9% y-o-y (volumes +23.9%) while clothing sales were up +20.3% (volumes +12.1%). The performance of furniture (values +25.5%, volumes +14.9%) is more difficult to square with the narrative of consumers supposedly cutting back on big ticket purchases.

At the other end of the performance spectrum, a number of sub-sectors suffered the ignominy of seeing a decline in both values and volumes. These included jewellers (values -16.0%, volumes -20.9%), DIY (-21.2%, -30.2%), electricals (-4.8%, -4.7%), PCs & telecoms (-9.6%, -7.1%) and sports/games/toys (-0.9%, -4.4%).

For a more visual interpretation of the December retail sales figures, please refer to the accompanying dashboard.

The poor performance of a number of the online pure-players (e.g. ASOS, Boohoo, AO.com) and the stronger showing of stores vs e-commerce among many of the multi-channel operators was fully reflected in an accelerated decline in online sales. Total online sales values slumped by -8.9% year-on-year in December, with online volumes presumably also down by ca. -20%.

Online grocery sales were down -12.2% year-on-year. Perhaps more surprisingly, the month-on-month trend was flat (0.0%), indicating that there was not the seasonal spike that most would have anticipated. Non-food online sales were down -3.9% year-on-year and -1.4% month-on-month.

With monthly online sales declines averaging ca. -11% throughout 2022, it seems incredible that the ONS are still quoting an online penetration figure of 25.4% (versus 25.3% in January 2022). The total retail market grows by ca. 5%, online declines by ca. 10%, yet the latter grows its share of spending? Again, this makes no sense and can only be explained by selective adjustment of the numbers.

For much more on the trials and tribulations of the online market, please refer to our Retail Property Market Outlook Report for 2023 – ‘Riders on the Storm’.

Q4

Obviously, with the December figures we also get the full read on the Q4 and full-year (FY) performance. Q4 retail sales values (exc fuel) grew +3.6% year-on-year (vs KF forecast of +3.5%), while Q4 retail sales volumes were down -6.0% (vs KF forecast of -6.0%). Quarter-on-quarter values were up +0.9%, volumes were down -1.2%.

Quarterly trends for the year as a whole were all over the place. Values (+10.9%) and volumes (+4.3%) both showed healthy growth in Q1, helped by the last vestiges of COVID-based distortions boosting non-food sales (values +36.5%, volumes +28.0%). The onset of inflation saw volumes turn negative from Q2, but the value trend has remained largely positive, the rate of growth decelerating only slightly in Q4 (+3.6%) vs Q3 (+4.2%).

In fact, grocery values accelerated in Q4 (+6.6%) vs Q3 (+6.2%), while non-food growth held firm at +4.1%. By extension, any deceleration in Q4 retail sales growth was down to online (the record might change at some point, but only when the song is no longer relevant).

2022 FY

And finally, the full outturn figures for 2022 as a whole (which, thankfully, are spared the vagaries of “seasonal adjustment”).

Total retail sales values (exc fuel) grew +4.8% in 2022 (vs KF forecast of ca. +5%), though the onset of inflation obviously saw a significant decline in retail sales volumes of -3.4%. This was comfortably the worst annual volume performance, the previous annual low being -1.8% in 1991 (NB the ONS data only goes back to 1989 and we therefore have no reference to the last double-digit inflation period in the early 1980s).

How does the value growth of +4.8% sit? Excluding the post-COVID artificial spike in 2021 of +6.2%, this is the highest level of growth since 2004 (also +4.8%) and above both the 10 year (+3.4%) and 20 year (+3.2%) annual averages. Perhaps more tellingly of all, +4.8% is likely to be higher than overall GDP growth, the retail market outperforming the wider economy. And not for the first time.

A quick summary of some of the sub-sector highlights from 2022. Food growth was a respectable +3.1% in 2022, above the 10 year average (+2.4%), but obviously with significant volume decline (-5.9%). For the second year running, non-food values grew in double digits (+10.2%) and volumes for the year as a whole were positive (+2.5%) despite mounting pressure from inflation in the second half of the year.

Unbelievably, carpets (values +40.2%, volumes +29.2%) were by far the strongest performing category in 2022, even against a tough comp (+49.2%) the year prior. Other strong categories were footwear (+32.4%, +24.7%), clothing (+24.1%, +15.3%), cosmetics (+24.6%, +17.2%) and PCs & telecoms (+24.3%, +25.4%). In contrast, chemists (-18.2%, -20.9%), DIY (-11.6%, -22.2%) and electricals (-7.6%, -8.7%) had a year to forget.

Again, for a more visual interpretation of the 2022FY retail sales figures, please refer to the accompanying dashboard.

Key takeaways

The ONS figures have taken the gloss off a generally positive Christmas trading period. A whole host of operators, including major high street names such WH Smith, Superdrug, Dunelm, Lush, Hotel Chocolat and Burberry’s, have this week joined the ranks of retailers proclaiming Christmas to be very strong. Only online pure-plays Boohoo and THG reported disappointing figures, along with Currys.

Analysts struggling to reconcile the wave of positive news from retailers and the much higher figures from the BRC were suggesting a ‘final hurrah’ of spend in Q4, ahead of massive slump in demand in 2023. Going forward, the ONS numbers may suggest as much, the monthly figures for January and February unlikely to set the world on fire. But that shouldn’t raise too many alarm bells, the seasonality of retail meaning that January and February are two of the quietest months in the annual retail calendar. Most retailers would happily trade a very soft February for a semi-decent December. But who knows what “seasonal adjustment” the ONS will apply to those numbers and what distorted picture may emerge.

Perversely, the downbeat release from ONS may actually be of benefit to the retail sector in that it ensures the sector keeps its feet on the ground. Whatever the ‘official’ figures may so, Christmas 2022 was far better than anyone imagined and with that came the slight risk that there was an over-reaction on the upside.

Make no mistake. Christmas 2022 was strong – but greater challenges lie ahead in 2023.