The Retail Note | Retail sales: lull before the storm?
10 minutes to read
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This week’s Retail Note analyses the official retail sales figures for October from the ONS (terrible) and details our projections for Christmas (not so bad).
Key Messages
• Consumer demand weak in Oct
• Budget fears, anticipation of Black Friday?
• Or just plain maths (e.g. absence of half term)?
• MoM values -0.6%, volumes -0.7%
• YoY values +1.8%, volumes +2.0%
• Implied deflation of -0.2% a concern
• Grocery demand inexplicably weak (vals -1.3%, vols -2.6%)
• Non-food sales stronger (vals +4.1%, vols +4.9%) but deflationary
• Bad month for clothing, footwear, chemists, furniture
• Good month for jewellery, cosmetics, books
• Online declines -1.2% MoM
• Online penetration declines -10bps to 27.7%
• A slow start, but Xmas still likely to be decent
• Projected spend of ca. £53bn in Dec, ca. £132bn in Q4
• Growth levels hard to project on account of ONS adjustments
• Tentative prediction of vals +2.5% to +3%, vols +3% to +3.5%
• Neither a bonanza nor a disaster – and plenty for retailers to go for.
Here we go again. The obsession with month-on-month performance giving rise to a perpetual ‘good month – bad month’ yoyo. And a weak October being blamed on purchases being deferred to Black Friday in November. With Autum Budget concerns thrown in for good mix. And Christmas already being written off. I think we have been here before.
The headlines…
The largely meaningless headline stat is that retail sales volumes fell by -0.7% in October 2024, following a rise of +0.1% in September 2024 (revised down from +0.3%). This was worse than economist consensus forecasts of -0.3%, but then again, I can’t remember the last time they were even close to getting it right.
Not much detail in the ONS narrative to pick out: “Non-food stores sales volumes fell on the month as retailers reported that Budget uncertainty affected sales…The reporting period for this bulletin covers 29 September 2024 to 26 October 2024. Historically, school half term for England and Wales typically falls within the October reporting period but did not for October 2024. This is not adjusted for in our seasonal adjustment.”
The latter a very telling statement on two counts. Yes, the timing of half term probably did negatively affect the October figures. And secondly, seasonal adjustment is one of the perennially dubious aspects of the ONS retail sales releases. Interesting that that always seasonally adjust the December figures to exclude Christmas (unbelievably), but selectively aren’t seasonally adjusting October figures to include half term.
“Non-food stores sales volumes – the total of department, clothing, household and other non-food stores – fell by -1.4% in October 2024, following a rise of +2.3% in September. Retailers across a range of industries suggested that low consumer confidence and uncertainty around the Budget announcement (which took place on 30 October 2024) affected sales. The strongest subsector fall was within clothing stores, which fell by -3.1% over the month to October 2024. This fall follows growth in previous months attributed to end of season sales and improved weather”.
So, non-food was the main drag, with clothing one of the key culprits.
A more informed view
The year-on-year and sectoral figures paint a much richer picture – in fairness, one that is not tangibly better. YoY retail sales values (exc fuel) grew by very modest +1.8%, a sharp deceleration on the +2.9% reported in September. YoY retail sales volumes (exc fuel) grew by a healthier +2.0%, but the implied rate of deflation of -0.2% remains something of a concern.
Grocery was actually the main drag on performance, not non-food. YoY supermarket values actually fell by -1.3%, with volumes down -2.6%. This reflects ongoing weakness in demand that is hard to explain – certainly the main foodstore operators are not flagging anything out of the ordinary.
In contrast, non-food sales values increased by +4.1% YoY. However, this seemingly positive number flatters to deceive. It is marked deceleration on the +6.9% reported in September and non-food retail sales volumes were up +4.9%. Implied deflation of -0.8% is proving sticky, albeit thankfully not trending the wrong way (September -0.9%).
Performance by sub-sector
It follows that the non-food sub-sectors that experienced the highest YoY headline growth were also the most deflationary, notably PCs & Telcomms (values +66.8%, deflation -21.6%), Music & Video Recordings (+24.5%, -6.7%), Carpets (+21.3%, -4.0%) and Sports, Games & Toys (+20.9%, -0.8%).
The worst performing categories were those that were deflationary, yet still did not achieve value growth. These included Footwear (-3.7%, -1.2%) and Non-Store Retail (-4.8%, -4.4%). As flagged by the ONS, Clothing did indeed have a bad month (YoY values -2.1%, volumes -3.3%), a disappointing reverse on the growth momentum witnessed in August and September.
But it wasn’t all bad. Some non-food categories achieved the triple crown of value and volume growth, while remaining in low inflationary territory. These included Jewellery (+12.4%, +9.5%, +2.9%), Cosmetics (+12.0%, +11.8%, +0.2%) and Books, Newspapers & Periodicals (+11.3%, +10.0%, +1.3%).
The old chestnut of physical stores suffering at the hands of online carried no weight at all last month (not that it really ever does). Online spend fell MoM by -1.2% during October 2024, double the -0.6% value decline across the retail market. Correspondingly, online penetration decreased from 27.8% in September to 27.7% in October. Online remaining a picture of permanent monthly volatility, rather than of guaranteed growth that we maybe saw in the past.
For more detail on these numbers, please refer to the accompanying Retail Sales Dashboard.
Black Friday
My sentiments on Black Friday have been well-documented and rarely pass the censors. Taking all that as a given, it is difficult to square this direction of travel with all the noise that is already in full flow. The lazy narrative will, of course, be that consumers were holding off spending in October in anticipation of Black Friday and there will be a massive demand spike in November – and then a big tail off in December.
For all the vacuous noise and lazy narrative, grocery demand will always move the needle most on retail sales. And grocery is largely impervious to the folly that is Black Friday. In non-food, the spotlight is on the clothing sector, with demand having been so weak for much of they year and presumably there still being so much stock still to shift. But none of the three biggest players (M&S, Primark, Next) will partake in Black Friday, wisely understanding the value of full-price sales and the importance of brand preservation. So, expect considerable polarisation between the measured players and the desperate ones.
Elsewhere in non-food, we are already firmly in deflationary territory, it is difficult to see where we go from here. Retailers are already reducing prices, they have little room to manoeuvre further. Which circles back to one of my fundamental anti-Black Friday arguments – it’s a lot of noise about nothing, there aren’t many ‘bone fide’ discounts, just a lot of bandwagon-hopping and lazy marketing.
The timing of Black Friday itself is interesting this year. Not that it is any longer a day in isolation, more the fag end of an extended period. But it will probably be incorporated into the ONS’ December figures, rather than November’s (which, ironically, should include the half term uplift missing from October).
A messy minefield. Disruption rather than salvation. As you were.
Christmas projections
Such is the treatment of the raw data by the ONS these days that forecasting Christmas trading has become something of a fool’s errand. Trying to provide forecast growth figures has become as much an exercise in second-guessing the ONS as it has in assessing the retail environment over the festive period.
Majoring on month-on-month comparisons, then clumsily trying to apply both seasonal and calendar adjustments muddies the waters to the point of total obscurity. Take last Christmas by way of perfect example. By the ONS’ reporting, December was terrible. MoM values were down -3.6%, volumes down -3.2%. But January was supposedly great, with MoM values rebounding +3.9% and volumes up +3.4%.
The inference being that sales slumped in December (which inevitably everyone put down to Black Friday) but recovered strongly in January. Which is, of course, totally ridiculous, as the raw ‘unadultered’ ONS Pounds Dataset shows. Taking out all adjustment, retail sales values were a full +29.5% higher in December than they were in November. And -39.3% down on December in January. A reported MoM decline of -3.6% vs actual growth of +29.5%, then reported growth of +3.9% vs a decline of -39.3%? Ridiculous.
Ridiculous, but I expect to see exactly the same this time around. I’m not even going to second guess what MoM figures the ONS are going to concoct. And I certainly won’t be giving them any credence.
Of course, the YoY figures are more meaningful, but even they are not watertight. YoY values in December 2023 were up +2.3%, but volumes were down -2.4%, as inflation was still a thing back then. The complication this year is that Black Friday itself falls late (29 Nov), so, in theory this is likely to be captured in the December figures, rather than the November ones.
Putting a gun to my head, I would tentatively forecast that YoY retail sales values will be up +2.5% to +3% in Q4, with volumes up slightly more at +3% to +3.5%. I predict that YoY retail sales values will be up +2% to +2.5% and volumes up +2.5% to +3% in December. But all of these projections are at the mercy of the ONS and what approach they take to both seasonal and calendar adjustment.
Given all the mathematical jiggery-pokery, I have more confidence in the absolute figures than I do growth projections – ca. £53bn in December and ca. £132bn for Q4 as a whole.
And I think this is the bigger picture. Contrary to inevitable media sensation, Christmas will neither be a bonanza nor a disaster. It will happen and consumers will spend a lot of money. £53bn / £132bn is a lot for retailers to go for. Those with the strongest brands that execute most effectively will reap the greatest reward.
Sometimes retail really is that simple.
Wider Xmas predictions
Away from the numbers, more general predictions for Christmas (feel free to check them off with your mates):
· Retailers universally declare Black Friday a triumph
· The reality is anything but (lowest common denominator retailing at its worst)
· Someone will come up with Sat 21st Dec being ‘Panic Saturday’, which the media will love
· Mon 23rd Dec will actually be the busiest shopping day of the year
· Footfall figures will be released within 2/3 days of Christmas Day – footfall will be down
· They will paint a very distorted view of Xmas trade, but the media will latch onto them
· Next will be one of the first major retailers to report – and its figures will be very good
· Aldi and Lidl will be hot on their heels, both declaring ‘record Christmasses’
· But both have far more stores than ever before, so of course Xmas sales will be ‘record’
· Both will sell a gazillion mince pies and brussel sprouts, but neither will give a l-f-l figure
· Tesco and Sainsbury’s will both perform well, but question marks over Argos
· M&S and Primark strong performers on the non-food side
· In fact, very few retailers release poor Christmas trading statements
· BRC retail sales release (due Tues 7 Jan) will be downbeat
· Official ONS retail sales release (due Fri 17 Jan) will be all over the place for the reasons outlined.
Only 32 shopping days to go – make them count!