Retail sales: disappointing rather than disastrous
This week’s Retail Note analyses the official May retail sales figures from the ONS, which inevitably saw month-on-month volume declines. But do they reflect the inflation-ravaged crisis purported in the media?
5 minutes to read
Key Messages
- May’s retail sales figures could have been much worse.
- Retail sales values (exc fuel) +1.7% y-o-y.
- Growth achieved despite post-lockdown comp of +21.5%.
- But growth driven largely by inflation.
- Month-on-month retail sales values down -0.7%.
- Partly a function of seasonality / timing of Easter.
- Volumes down -5.7% y-o-y, -0.7% m-o-m.
- Clothing very much the star performing category.
- Clothing sales values up +16.5%, volumes up +8.4%.
- Online sales decline -7.9% y-o-y, -1.7% m-o-m.
- Online grocery -10.0% y-o-y; non-food -10.6%; online pureplays -5.1%.
- Online penetration declines to 26.6%.
- Implied ‘shop price inflation’ lower than CPI (7.4% vs 9.0%).
- Retail sales recovery likely in June on back of Jubilee celebrations.
"But, disappointingly, the pre-occupation with month-on-month trends does tend to colour the narrative. I can say with some confidence that the economist community will sharpen their pencils ahead of the May figures, as they will inevitably show a negative month-on-month trend. May didn’t include Easter, April did. As simple as that"
I refer to the Retail Note of 20 May, which looked tentatively ahead to today’s release. Need I say more? I better had, else this would be a very short Retail Note. Mercifully so, some may say…
The retail sales figures for May were always going to be bad. And so it has proven. But maybe not as dire as some were predicting. And there are still some surprising bright spots in the numbers (spoiler alert: the performance of fashion). But the spectre of inflation looms large over the whole release.
The headline numbers
The most meaningful headline number under normal circumstances does not tell the full store here. Year-on-year retail sales values excluding fuel were up +1.7%, an acceleration on the hastily revised down figure for April (+0.6% vs +1.3% previously reported). Including fuel, y-o-y value growth was higher still (+5.0%). Lest we forget, this growth was leveraged off a formidable comp from last year, when retail sales values grew by a massive +21.5%. Some comfort can be drawn from the fact that the UK consumer is still spending.
Volumes (i.e. real growth) tell a very different story. Retail sales volumes exc fuel were down -5.7% y-o-y (-4.7% inc fuel). Inflation is biting and the consumer is buying less, but spending more.
The far less meaningful month-on-month figures are inevitably proving the main focus of attention in both the economist community and the media. Values were actually up m-o-m (exc fuel +0.2%, inc fuel +0.6%), but m-o-m volumes were inevitably down (exc fuel -0.7%, inc fuel -0.5%). I refer to my opening comment – retail is highly seasonal, some months are busier than others. The figures for April included Easter, the figures from May didn’t. A m-o-m decline was inevitable, no matter how much “seasonal adjustment” the ONS tries to factor in.
Not great, but not nearly as bad as they could have been would be my summation of the headline numbers.
Food and ‘big ticket’ non-food the main drag?
A weird comp base from last year as we emerged from Lockdown V3 distorted many of this year’s numbers. Grocery growth of +2.5% y-o-y may seem respectable, but was off a very soft comp last year (-3.7%). Grocery volumes were down -5.8% y-o-y, which, according to the ONS “seems to be linked to the impact of rising food prices and the cost of living.”
Non-food sales values increased y-o-y by +2.6%, a generally strong performance given the demanding y-o-y comp (+85.9%). Star performing category was undoubtedly clothing, with y-o-y sales values up +16.5% despite a very tough comp (+145.1%). Interestingly, clothing volumes were still significantly up (+8.4%) despite the inflationary environment. In essence, people are buying more clothing despite rising prices.
This is not the case across the board in non-food. It is far too facile to conclude that consumers are cutting back on “big ticket” and discretionary purchases, as some such categories defiantly bucked this trend. For example, carpet sales grew by +16.0% (against a y-o-y comp of +516.5%), while PCs & Telecoms sales were up +13.6% (+135.7%). But Household Goods stores generally were down -11.5% (+84.5%), with furniture sales down -9.3% (+248.0%), electricals down -20.4% (+58.1%) and DIY down -7.8% (+24.5%).
The picture is too mixed to make firm conclusions as to the direction of travel.
Online still in freefall
Online saw another month of significant decline, albeit with some degree of levelling off. All online sales declined by -7.9% y-o-y (-1.7% m-o-m). Online grocery had another month of double-digit decline (-10.0% y-o-y, -0.2% m-o-m) reducing online grocery penetration to 9.3%, much closer to where it was pre-pandemic (ca. 7%) than the heights it reached during the pandemic itself (ca. 15%).
Online non-food declined -10.6% y-o-y, but actually saw marginal growth m-o-m (+0.4%). This was driven largely by clothing (+1.7% y-o-y, +1.6% m-o-m), with other non-food categories seeing sharp reverses (department stores -15.7% y-o-y, -1.7% m-o-m, household goods -21.2% y-o-y, -0.3% m-o-m). Online pure-plays saw a particularly steep m-o-m decline (-3.5%).
Online penetration reduced to 26.6% in May, a full 10 percentage points lower than the peak of the pandemic.
The inflation picture
According to ONS figures, shop price inflation (all retail sales exc fuel) stood at 7.4% in May, somewhat below the CPI benchmark of ca. 9.0%. Fuel inflation stood at a whopping 33.6%, yet interestingly, fuel volumes were still up y-o-y (+5.0%).
Within the retail sub-sectors, there are some inflation variances. Food inflation rose to 7.4%, with non-food marginally lower at 7.2%. Inflation was highest in categories such as DIY (11.9%), Furniture (10.7%) and Garden Centres & Petstores (10.6%) and lowest at chemists (2.7%) and electricals (1.1%). PCs & Telecoms were actually deflationary (-2.1%).
Where now?
As I always say, it is dangerous to read too much into one month’s retail sales figures. Everything was conspiring against May’s numbers – a ridiculously tough year-on-year comp plus a strong prior month
when spending was boosted by the timing of Easter. Ahead of something in a bounceback in June on the back of the extended Jubilee week-end. All things considered, the figures for May could have been significantly worse.
What might we expect from the June figures? I would tentatively expect something of a monthly recovery given the seasonality of retailing (we always tend to spend more in June than we do in May), coupled with the aforementioned Jubilee celebrations and a general improvement in the weather. I would expect further y-o-y value growth as the comp base eases slightly (but +8.9% in June 2021 is still significant).
Inflation is there for all to see. But the retail wheels haven’t come off just yet.