Retail sales: really lower than pre-COVID?
This week’s Retail Note analyses the official retail sales figures from the ONS for September – disappointing but in need of context.
4 minutes to read
Key Messages
- Sep retail sales figures disappointing, but with some brightspots
- Some inevitable distortion around additional Bank Holiday
- Y-o-y retail sales values (exc fuel) +3.3%
- But stripping out inflation, volumes (exc fuel) -6.0%
- M-o-m retail sales values down -0.4%, volumes down -1.5%
- Demand still v strong in textiles, cosmetics, carpets and footwear
- Chemists, DIY, electricals and jewellery far more challenged
- Food values +6.0%, volumes -5.7%
- Y-o-y online sales values down -8.2%, implied volumes down more than -20%
- Online grocery down -11.1% y-o-y
- Online non-food down -7.1% y-o-y
- Real acid test of consumer demand from Oct
“UK economy hit as people shop less than pre-COVID”. The BBC have got the headline they wanted, even if it is slightly misleading. While there is no dressing up today’s retail sales figures from the ONS, they do need substantial qualification. September was an exceptional month for so many reasons and the passing of HM the Queen and the subsequent State Funeral definitely impacted on retail performance as much as the wider economic and political backcloth. Earlier figures from the BRC suggested that the additional Bank Holiday had a mildly positive impact on retail sales, but this is sharply contradicted by the ONS.
The overall picture
The new-found obsession with retail sales volumes (as opposed to values) detracted from overall market growth. The tone of virtually all narrative is of a collapse in retail spending which simply isn’t the case. Retail sales values (exc fuel) grew (repeat, grew) +3.3% year-on-year. In simple terms, we spent +3.3% more in September than we did in the corresponding month last year. For all its challenges and negative reads (of which there are many), overall retail spending is not in freefall.
But the effects of inflation are plain to see and the volume picture is markedly different. Retail sales volumes (exc fuel) were down -6.2% year-on-year. In simple terms, we bought -6.2% less stuff in September than we did in the corresponding month last year.
The “shopping less than pre-COVID” headline is a tenuous one. The basis for it is that retail sales volumes in September were -1.3% lower than in February 2020. A very spurious one-month comparison which also conveniently glosses over the fact that retail sales values were +11.8% ahead on the same basis. But why let reason and context stand in the way of an agenda-suiting headline?
Sub-sector trends
As ever, there were huge disparities in the performance of retail sub-sectors. And some surprising bright spots amongst the nasty numbers. Some logical trends, some that beggar belief.
As per current zeitgeist, I’ll lead with the most negative. A number of categories were in negative territory in both value and volume terms, including supposedly demand-inelastic Chemists (-21.7%, -25.5%) and more discretionary Jewellers (-12.0%, -16.9%), Electricals (-8.9%, -10.0%), DIY (-8.1%, -19.3%) and Sports / Toys (-3.6%, -10.0%). Ouch on all counts.
But at the other end of the spectrum, a number of categories continue to see both value and volume growth. Expressed another way, consumers bought more of these goods and spent more, seemingly undeterred by inflation. These categories included Textiles (+28.3%, +19.6%), Footwear (+26.8%, +18.4%), Cosmetics (+23.4%, +12.2%), Second Hand Goods (+22.4%, +14.6%), PCs/Telecoms (+7.4%, +8.6%) and Books & Magazines (+6.2%, +0.5%). And most bizarrely of all, Floorcoverings (+19.4%, +10.7%).
The inflation picture
Implied inflation likewise varies significantly between retail sub-sectors. General CPI figures released earlier in the week showed that food price inflation was running at more than 14%. The retail sales figures suggest that inflation at Foodstores was slightly lower at 11.7%. As a result, retail sales volumes at Foodstores were down –5.7% y-o-y, despite value growth of +6.0%.
In some other categories, inflation is actually very low (e.g. Electricals 1.1%), while some are actually deflationary (e.g. PCs/Telecomms -1.2%, Music & Video Recordings -1.0%).
The most inflationary category apart from Fuel (20.9%)? Non-Store Retailing at 14.0%...
Online decline – some m-o-m improvement
A slightly less bad month for online that we have seen for some time. Online sales grew m-o-m by +1.2% (food +0.5%, non-food +1.5%), although household goods went against this grain (-4.2%).
But the annual picture is more of the same. Online sales values declined y-o-y by -8.2%. Factoring in inflation, online sales volumes would have declined by more than -20%. In layman’s terms, we bought 20% less stuff online last month than we did in September 2021. Online grocery values declined y-o-y by -11.1% and online non-food was down -7.1%. Online pure-players saw sales values decline by -8.1%.
Where now?
To recycle last month’s Retail Note summation: “The ‘bad month / good month’ yo-yo pattern is likely to have been severely disrupted by the tragic events of the last fortnight. The economic reality of an unforeseen Bank Holiday and the somber national mood generally are likely to have curtailed consumer demand considerably, over and above any impact of the consumer squeeze. September’s figures are likely to make for sobering reading, before the real acid test comes from October when the energy price hikes really kick in.”
There is limited comfort in calling the outcome for September right and our prognosis for October remains valid, with all the unforeseen political turmoil thrown in for (not) good measure.