Christmas 2017: any growth is good growth

Written By:

Stephen Springham, Knight Frank

01 Dec 2017

10 minutes to read

Categories: Retail UK

Information Overload

The issue is compounded by the fact that there are so many third party data providers apparently tracking retail sales (the ONS, BRC, CBI, BDO, Barclaycard, Visa, Deloitte, to name but seven), yet there is such inconsistency with the messages that they are conveying. 

Knowing how much weight to attach to a given release, coupled with the conundrum of which parts of the data to major on, is a perennial minefield that many struggle to negotiate.

Our Predictions for Christmas 2017

Our predictions are based on the ONS data. These are the most comprehensive ‘official’ figures, although often receive the least attention in the press due to the fact they are released long after the other data providers have had their say. Our predictions are

• Christmas 2016 was incredibly strong, making for a formidable comparative this year
• Oct – Dec 2016: value +5.6%, volumes +6.2%. Dec 2016: value +4.9%, volumes +5.1%
• There will be retail sales value growth this year, but volume growth will be more challenging
• Any volume growth at all is good growth
• Oct – Dec 2017: value +2.5% to +3.0%, volumes -0.5% to +0.5%
• Dec 2017: value +1.0% to +2.0%, volumes -0.5% to +0.5%
• Christmas will come late, making for a nervous waiting game for retailers
• The extent to which margins have come under pressure will not be immediately apparent.

What we know so far

Thus far, the only reliable evidence we have had are retail sales figures for October. By any measure, these figures were not strong, but were probably not as bad as has been widely reported. Many commentators have lazily latched onto the fact that October was ‘the worst month since 2013’, when actually retail sales values (exc fuel) were up by 2.8%. For once, many were focussing on the 0.3% decline in volumes. There is an annoying hypocrisy here in that in times of heavy deflation (which, lest we forget, we experienced for a solid 2-3 year period in the run up to Brexit), few commentators focused on volume growth. The tendency always seems to be to major on the lowest number.

Be that it may, there is no denying that the final quarter of the year got off to a slow start. October coincided with the start of an exceedingly strong comparable base last year and these comps will not get any easier as the quarter unfolds. If focussing on the data alone, many of the challenges UK retail faces over Christmas are mathematical. In simple terms, last year’s growth will be hard to top and any growth at all (volume especially) will be extremely hard to come by. Last year’s phenomenal rates of growth will not be matched.

The messages since could not have been more muddled, the waters any less muddy. Of course, Black Friday has done little to provide clarity. A number of indicators going into Black Friday (particularly those from Retail Economics and ICM) pointed to consumer fatigue and a major disconnect between shopper intentions and retailer aspirations. As we predicted, the noise around Black Friday was once again deafening, but the outturn so far inconclusive. PCA Predict were only lukewarm in their assessment, while figures from Footfall showed a year-on-year decline in traffic of -3.6%. Barclaycard and The Centre of Retail Research both said that retail sales were up 8% year-on-year. Footfall down significantly, yet sales up considerably – at face value a huge surge in online, but beware the pitfalls of mixing and matching datasets from various third party providers.

So, a mass of contradictions. Footfall down, sales up? A damp squib or a sales bonanza? Sales growth achieved at the hefty expense of margin? Widespread promotion and discounting, yet supposedly an inflationary environment? Cash-strapped consumers apparently splashing the cash? Or not?

The various third party data providers will provide their respective figures for November in the coming weeks, but even then, don’t expect a crystal-clear picture to emerge.

The Data Providers

While ostensibly tracking the same thing i.e. the performance of the UK retail market, the various data providers employ very different methodologies. Over and above different approaches, sample sizes vary enormously, as do the actual reporting periods that they refer to. In short, some are far more reliable than others, yet the weight attached to them is not necessary commensurate to this. To outline some of the major providers and the various pros and cons of their releases:

1. CBI Distributive Trade Survey

The biggest pro of the CBI survey is its apparent timeliness – it usually gets released in the last week of the month. This ‘first mover advantage’ tends to afford it significant media coverage, but it is also its fundamental flaw – the survey only partially reflects the period is reporting on. Usually, the survey covers the last two weeks of the preceding month and only the first two of the one it is supposedly referring to. So, the forthcoming report for November (due any time) will actually exclude the Black Friday period, by far the busiest of the month. So, the report for November may well send out a very dispiriting message.

There are other severe limitations in the survey, notably its relatively small sample size, it is largely sentiment- rather than sales-based, there are no transparent weighting to take into account the size of the retailers surveyed and the outputs are a touch simplistic - netting off positive and negative responses to give a ‘balance’ either way. I personally do not attribute much meaning to it as a survey and think it generally receives disproportionate coverage.

2. BRC – KPMG Retail Sales Tracker

In my opinion, the second most reliable of the various indicators after the ONS. Its sample size is large enough to be representative (it reflects ca. 60% of UK retail trade) and is generally timely, usually released the Tuesday after month-end (November’s release should be on 5 December, December’s on 9 January). The figures are also clearly presented and digestible, with two key headline statistics – year-on-year total sales growth and like-for-like growth (i.e. net of new space), plus various food vs non-food and segmental breakdowns. The year-on-year total sales growth is the key headline stat and one that should, in theory, relate to the ONS’ figure for total retail sales value growth.

If there are flaws with the BRC/KPMG release, it is sometimes more in the accompanying narrative than in the data itself. As an industry body, the BRC clearly has an agenda in defending and promoting the UK retail sector. This agenda includes lobbying the government on issues such as potential interest rates rises and fairer assessments of business rates. While we are generally very supportive of these agendas, they can unfortunately cloud the BRC narrative, which has a tendency to downplay rather than overstate its own figures. A nuance that is all-too-often not picked up by the press.

3. ONS Retail Sales Monitor

The ‘official’ source of retail sales data is by far the most rigorous and comprehensive study, encompassing over 5,000 retail businesses and representing ca. 95% of UK retail trade. The full 100+ page monthly release and accompanying datasets go into extraneous detail, with much of it more for the retail anorak than casual observer. Some may question the veracity of the data (particularly the apparent strength of performance since the Referendum vote), but it is still the most reliable source we have.

If there are two flaws with the ONS figures it is the fact that  they are not particularly timely and that the data is prone to being misrepresented in both the media and, more criminally, in the City. Given the scale of the undertaking, it is not surprising that the ONS figures take much longer to collate and the monthly release is usually on the third Thursday into the following month (November’s figures will not be out until 14 December and those for December are not anticipated  before 18/19 January). Although they are the ‘official’ figures, by the time they are released they are often considered ‘old news’, even if they tell a different story to those that preceded them. There is always something of an irony (anti-climax even) that after months of frenzied speculation as to how the retail market will fare over the festive season, the actual results seem to pass by with limited interest.

With the wealth of data in the release, there is also a tendency amongst some commentators to overlook the purest and most reflective numbers – year-on-year monthly value and volume growth (exc fuel). City economists are all too often guilty of looking at month-on-month trends which do not take into account the seasonality of retailing that is not a factor in other macro-economic indicators.

4. BDO High Street Sales Tracker

Outlines the weekly sales changes of more than 70 mid-market retailers with some 10,000 individual stores. Produced on a timely basis (broadly in line with the BRC), but usually only covers the first three weeks of the month, plus the last of the preceding month. So the release for November will only partially include Black Friday.

Provides like-for-like growth figures for Lifestyle, Fashion, Homewares and Non-Store. Unsurprisingly, growth for Non-Store operators always eclipses all the other indicators by a huge margin. In an increasingly multi-channel retail world, we would argue that it increasingly artificial to maintain a dividing line between store and non-store trade, as the relationship between the two is symbiotic. In our view, the BDO tracker unwittingly perpetuates the myth of online being detrimental to physical channels.

5. Visa / Mastercard / IMRG Capgemini Sales Index

The major credit card companies are obviously at the coal face of consumer spending and regularly produce trend reports. The issue is that they tend to refer to all spending, as distinct to just retail spend. The figures seldom correlate to ‘purer’ retail sales trackers.

Similarly, the IMRG Capgemini Sales Index is widely seen as a good barometer of online retail sales performance. In reality, it includes a number of spend categories that are not strictly within the realms of retail e.g. travel.

Retailing is for Life, not just for Christmas

How to navigate the ‘information overload minefield’? Our advice would be to focus on the BRC releases (and understand the context of the accompanying narrative), major on the official ONS releases (as and when they are published) and take the various other releases with a pinch of salt.

Of course, the post-Christmas period will be awash with retailers’ own trading statements, many of which will be made public long before the ONS figures are released. Even these ‘frontline’ statements from the retailers themselves do not necessarily provide full clarity, in that they are largely unaudited and can easily be manipulated by careful selection of a reporting period. Selective inclusion/exclusion of a single day’s trading figure can significantly distort the overall picture, so retailers have a lot of latitude in choosing how they present their figures. A glut of retailer trading statements and the inevitable division into ‘winners and losers’ is therefore not a particularly edifying undertaking.

Is there too much emphasis placed on Christmas in the retailing calendar? The ‘all-important Golden Quarter’ is no doubt a vastly over-used expression, but the fact remains that it is the busiest time of year for UK retailers. Most do not stand or fall (or indeed fail) on account of a good or bad festive trading period, but as a sector under such intense pressure, the margins (figuratively and literally) can be very fine.

In the final analysis, Christmas 2017 may be less about the actual numbers. The comparison with the unheralded boom in the corresponding period last year is going to point to a deceleration at best, a volume decline at worst. Rather than the hard numbers, Christmas is actually about the ongoing bigger picture – which is one of relentless challenge, the easing of inflationary pressures failing to offset wider Brexit uncertainty and the very real headwinds of another rise in the Living Wage and a business rate revaluation that has yet to fully work its way through the system. 

Even in the unlikely event of a disastrous festive period, the UK retail sector is still likely to record value growth of more than 4% for 2017 as whole. Even stripping out inflation, retail sales volume growth is likely to be between 1.5% to 2.0%, exceeding overall forecast GDP growth of 1.5%. 

Within the data minefield, one thing remains certain: the UK retail sector has once again out-performed the wider economy, whatever the outcome of Christmas.