The Retail Note | Retail sales: not coming home
8 minutes to read
To receive this regular update straight to your inbox every Friday, subscribe here.
Key Messages
- ‘Summer of Sport’ fails to ignite retail sales
- Retail sales values (exc fuel) down -0.1% YoY
- Only 13th month on record to see YoY spend contraction
- Retail sales volumes (exc fuel) down -0.8%
- MoM values and volumes both down -1.2%
- Expected spike in grocery demand did not materialise
- Food spend down -1.2% and volumes down -3.1%
- Non-food spend down -1.1% and volumes down -0.9%
- Non-food remains deflationary (-0.2%)
- Retailers cutting prices in the face of weak consumer demand
- Good month for textiles, cosmetics, music & video, carpets
- Bad month for furniture, HH goods, footwear, jewellery
- Online sales decline -2.7% vs all retail (-1.2%)
- Online penetration decreases -40bps to 27.1%
- Q2 showed a worrying deceleration on Q1
- No discernible correlation between sporting events and retail demand
- Retail sales far more susceptible to the weather.
A ‘Summer of Sport’ – Euro 2024, Wimbledon, the Olympics, to call out but three of the major sporting events this summer. A corresponding retail bonanza? One of the media’s pet topics, and a bandwagon embraced by the more gullible sections of the retail analyst community. But sadly little more than a myth that has once again not just been debunked as unceremoniously kicked into row Z.
The headlines…
The retail sales figures for June are so bad they should have been subbed before half time. Or not even picked in the first place. If you’re looking for a team parallel, worse than any team that didn’t make it out of the group stages, a team that got lost on the way to the airport. And when they did get there, found they’d left their kit behind.
The perennial month-on-month (MoM) vs year-on-year (YoY) debate was effectively rendered redundant last month – however meaningful or meaningless the figures are, they were all dire. YoY retail sales values (exc fuel) were down -0.1% in June, while volumes (exc fuel) were down -0.8%. That implied inflation was down to 0.7% (well below reported CPI of 2.0%) is about as much consolation as winning an award at the Euros for having the best haircut.
To put this into context, monthly retail sales values very rarely decline YoY. This is only the 13th time it has happened in the last 35 years – five of the other occasions were during COVID, two more during the GFC. It has now happened twice in the last three months. A volume decline of -0.8% in June may not look too bad compared to the monthly running average of ca. -4% to -5% we became accustomed to seeing in 2022/2023, but the inference is stronger and counterintuitive – prices are coming down, yet consumers are still buying less.
Of course, the ONS and economist community will major far more on the largely meaningless MoM figures. In the event, these were equally terrible, with both MoM values and volumes declining -1.2%. In fact, the only category to see volume growth was fuel, a non-retail category. This implies that retail categories performed even worse than the headline figure of -1.2%. The MoM figures are significant only in that they run counter to seasonal logic whereby June is traditionally a stronger month than May. This year it wasn’t.
By way of mild caveat, the latest ONS release is lagging, covering the period of 26 May to 29 June. So, it doesn’t cover the full Euros (only the group stages) nor Wimbledon, but it does include the late May Bank Holiday. Which should have provided a boost, but clearly didn’t.
Performance by sub-sector
The media-fueled notion that major sporting events are a fillip for retail has always flattered to deceive. The oft-cited ‘feelgood factor’ whereby consumers rush to the shops in the wake of a home nation victory is fanciful in the extreme. Beyond buying a few flags, a new England/Scotland shirt or upgrading a television, it’s difficult to see where any demand is going to come from. Conversely, a lot of consumer demand is clearly channeled into the pub – in effect, away from the high street. And this is clearly evident in the June figures.
If there is any grain of truth in a ‘Summer of Sport’ having a positive impact on the retail sector, it tends to be in the grocery sector. Consumers entertaining guests and throwing BBQs to coincide with the big games. Certainly, we have seen this in the past, but sadly not this time around. Grocery sales values were down -1.2% and volumes down -3.1%. That is pretty much the largest contraction in monthly grocery spend on record, if COVID-based distortions are excluded. Hopefully the grocery sector’s loss will have been the hospitality sector’s gain, but this is not apparent in the ONS release.
Equally grim on the non-food side, where retail sales values and volumes were down -1.1% and -0.9% respectively. Worst still is the implied non-food inflation figure of -0.2%. The dreaded deflation, a reflection of desperate price-cutting amongst retailers in the face of weak, rather than strong, consumer demand. Deflation was particularly rife in sectors such as PCs and Telecomms (-15.2%), electricals (-5.5%), furniture (-1.2%), garden centres (-0.6%) and sports goods (-0.4%). Even if consumers did upgrade their TV or buy a new football shirt, it was of limited benefit to retailers themselves.
A few crumbs of comfort in some retail sub-sectors. Cosmetics continued their exceptionally strong run (values +10.3%, volumes +8.0), while textiles (+40.4%, +39.9%) and music & video (+18.0%, +14.5%) had unlikely stormers. Underlining the lack of rhyme and reason to consumer patterns, carpets had a ridiculously strong month (+11.0%, +11.5%), while sister categories household goods (-5.8%, -4.7%) and furniture (-13.7%, -12.5%) toiled (Kane-ishly).
The performance of clothing remains an ongoing concern. Clothing sales values fell by a further -4.5% in June, with volumes down -5.7%. In the first six months of the year, clothing spend contracted at an average monthly rate of ca. -3.5%, with average monthly volumes down ca. -7%. No sign of any recovery in the June figures.
Obviously, the awful weather played a major factor in June figures, a factor that it is impossible to underplay. Ordinarily, we would expect this to play into online’s hands. But not so this time around. Online spending values declined by -2.7% MoM (but increased +2.3% YoY). With online’s performance (-2.7%) lagging behind overall retail performance (-1.2%), online penetration declined by -40bps to 27.1% in June.
A longer term view
Of course, with the June figures come the full Q2 outturn, which afford a broader perspective as to the state of consumer demand. Was June just a blip? There is limited insight in the ONS QoQ comparisons, which saw volumes decline -0.2%, other than the general trend is deteriorating.
YoY Q2 retail sales values (i.e. Q2 2024 vs Q2 2023) grew by a very modest +0.5%, a sharp deceleration on the +3.5% growth reported in Q1. YoY Q2 volumes declined by -0.5%, again marking a slowdown on Q1 (-0.2%). June was a blip. But then again, so was April, two blip months sandwiching a not-quite-as-good-as-it-seems May.
If the blips recur, by definition, they are not blips, they are something more severe. As things stand, all the narrative of a consumer recovery on the back of higher spending power and reduced inflation seems little more than a pipe dream, the economist manual well and truly thrown out of the window. At present, prices are coming down, consumers should have more money in their pockets, yet they are buying and spending less. Let’s hope that is not the shape of things to come.
Some perspective
Should we be surprised that the ‘Summer of Sport’ has thus far failed to deliver on the retail front? Not at all, especially if we look to history. In a previous life (when clearly I had too much time on my hands), I undertook detailed analysis on the correlations between sporting events and retail sales.- and even factored the performance of the national team into the mix. The conclusion reached back then: “it is difficult to establish any correlation, positive or otherwise, between sporting events and retail sales…Expressed another way, UK retail sales actually dipped in more tournaments than they grew.”
As already mentioned, the June figures are lagging and do not include the latter stages of the Euros and England’s stuttering run to the Final. Nor do they include the second strand of the fabled ‘Summer of Sport’, Wimbledon, with the Olympics still to come. Do not expect Wimbledon to move the needle in any shape or form – unlike the Euros or Olympics, Wimbledon is an annual event so will always be struggling to produce any incremental growth to retail sales. And as a long term resident, even local shopkeepers are not reporting any uplift in sales. If the good retail folk of Wimbledon Village at the epicentre of the whole event are not seeing a tangible boost, why would any retailer outside of the immediate vicinity?
If the year to date has proved anything, it is to reaffirm the extent to which retail sales are sensitive to the weather. Weather that has largely not played ball for many months now. As and when they are released in a month’s time, the figures for July should show a marked improvement on June, the ONS’ propensity for majoring on MoM performance partly perpetuating a ‘bad month – good month’ yo-yo.
But I suspect any underlying uplift will be a product of more favourable weather than any demand spike on the back of the ‘Summer of Sport’. A red herring, fake news, a total myth – but read all about it about it in the press in a month’s time.