Retail sales: more of the same, thank you
This week’s Retail Note focuses on the official retail sales figures for April from the ONS, which once again surprised on the upside.
6 minutes to read
Key Messages
- Retail sales improve on both a m-o-m and y-o-y basis
- Figures flattered slightly by weak comp bases in Mar 2023 and Apr 2022
- Retail sales values +1.7% m-o-m in April, volumes +0.8%
- Despite inflation, consumers bought and spent more
- Retail sales values surge +7.0% y-o-y
- Y-o-y volume decline of -2.6% lowest in over a year
- Cosmetics, footwear, clothing, jewellery top performing categories
- Chemists, electricals, PCs & Telecomms worst performing categories
- Grocery sales values +11.7% but volumes -2.7%
- Implied inflation in grocery (14.4%) much higher than in non-food (6.4%)
- Rebound in online grocery (+4.7% m-o-m, +3.1% y-o-y)
- But further declines in online non-food (-0.5% m-o-m, -1.3% y-o-y).
What interest rate hikes? That seems to be the response and ongoing stance of consumers, judging by today’s retail sales figures from the ONS. As ever, significant qualification is needed of the numbers themselves (soft comps last month and the corresponding month last year) but no evidence of a consumer meltdown in April – which is significant as this is one of the key months in the annual retail calendar.
The ‘headline’ numbers
Economists are happy, if a little bewildered. The largely meaningless month-on-month figures they so favour paint a picture of almost universal health. Retail sales values (exc fuel) grew +1.7% m-o-m. More positively still, retail sales volumes (which strip out inflation) also showed growth of +0.8% m-o-m. Despite ongoing sky-high inflation, consumers bought more and spent more last month than they did in the previous one.
Likewise over a slightly more extended quarter-on-quarter period. Over the three-month period (February – April), retail sales values (exc fuel) grew +2.4% and volumes (exc fuel) were also up +1.0%. For the die-hards that still place value on pre-pandemic comparisons, values and volumes were up +17.9% and +0.3% respectively versus pre-COVID levels.
Without wishing to rain on the parade, none of these figures carry huge weight. The pre-pandemic ones are largely spurious comparisons to a month in the dim and distant past (February 2020) while the month-on-month ones were against a very poor performance in March (-1.2%, revised from a fall of -0.9%). Again, this shows the limitations of month-on-month trends, which will nearly always show a perpetual ‘good month – bad month’ yo-yo.
The real headline numbers
The most meaningful figures are always the year-on-year comparisons, but even these need substantial qualification in this instance. Y-o-y retail sales values (exc fuel) grew by a hefty +7.0%, the best monthly performance since the weird and wonderful post COVID comps annualised out of the equation.
But the effects of inflation are still more than evident, with retail sales volumes (exc fuel) down -2.6% y-o-y. There may actually be some comfort here in that this is the ‘least bad’ monthly volume performance since inflation started to soar a year ago. In the intervening period, monthly volumes have typically been down -5% to -6%.
But context is everything. April 2022 marked a significant turning point in both the macro and retail economy on account of the onset of high inflation and this has significantly skewed the numbers this time around. This month’s growth of +7.0% was leveraged off a very soft comp of -0.1% last year. Likewise, the -2.6% volume decline was against -7.6% in April 2022. A volume decline on a volume decline, if you like.
Some perspective, rather than total gloss removal.
Performance by sub-sector
As ever, very mixed performance between the various sub-sectors, but largely no great deviation from what we have seen in the year to date. Broadly, retail categories fall into three performance camps:
1 – outperformance, enjoying both value and volume growth
2 – market performance, tracking the headline trend of value growth, but volume decline
3 – underperformance, experiencing both value and volume decline.
Grocery falls into the second of these camps (unsurprisingly, given that it is the largest contributor to retail sales @ ca. 45%). Foodstores saw retail sales values soar +11.7% in April, but volumes were down -2.7%. The implied rate of inflation of 14.4% slightly lower than other industry sources are suggesting, but very high nonetheless. Attributing the surge in grocery spend to Easter is something of a red herring in that Easter also fell in April in 2022, so would not be a factor in these year-on-year comparisons.
All non-food sales values grew +5.5%, with volumes down -0.9% (with a lower implied rate of inflation of 6.4%). Within this, there were a number of outperforming categories, including cosmetics (values +27.0%, volumes +15.4%), footwear (+16.4%, +11.8%), jewellery (+12.9%, +7.1%), clothing (+9.2%, +1.8%), books/newspapers/periodicals (+11.9%, +2.6%) and (oh yes) music & video recordings (+19.3%, +17.0%). Interestingly, few of these product categories tick the non-discretionary spending box that is so indelibly linked to the cost-of-living crisis narrative.
Supposedly non-discretionary chemists fell firmly in the underperformance camp (-10.1%, -14.8%), as did textiles (-12.7%, -17.6%), electricals (-9.9%, -13.6%) and PCs & Telecomms (-18.5%, -16.7%, demand slumping despite implied deflation of -1.8%). Significant underperformance too from Second-Hand Goods stores (-8.5%, -13.5%), again running completely counter to the cost-of-living crisis narrative.
Online = more decline
Slightly more nuanced figures on the online side. In the year-on-year comparison figures, Non-Store Retail saw values decline -1.1% and volumes -7.5%. But significant variations in the more granular figures.
All online retail sales were up +1.5% m-o-m and +1.3% y-o-y. But this was driven purely by online grocery (+4.7% m-o-m, +3.1% y-o-y), I suspect a seasonal and weather-induced response rather than a long-term trend reversal. Online non-food sales declined by -0.5% m-o-m and -1.3% y-o-y, with particularly soft demand for household goods online (-2.4% m-o-m, -3.4% y-o-y).
Where now?
By their very nature, retail sales figures always lag by a month. May has largely passed, yet we will not get the figures until 23 June. In theory, the additional Bank Holiday to mark the King’s Coronation should have provided a significant boost to retail sales, although poor weather for much of the month may have taken some of the shine off of any uplift.
If taking the numbers purely at face value, basic mathematics will again be the determining factor. May 2022 provided a fairly anaemic comp (values +1.4%, volumes -6.3%) which may make the y-o-y comps appear better than they actually are. Conversely, these strong figures from April will make May’s challenging and may make the m-o-m comps appear worse than they actually are. The limitations of the perpetual monthly yo-yo.
The numbers aside, the underlying message is still abundantly clear: there is still no sign of a consumer meltdown. And, as I find myself saying with increased frequency: things might not be as a bad as we originally thought.