The Summer of Spend
COVID-19 Market Update – 23/07/2021
7 minutes to read
Introduction
This is the 47th of a series of weekly notes analysing the state of the UK retail market in the light of the COVID-19 pandemic. Due to time pressures, this note focusses on just one key theme:
- What we learned from the ONS retail sales figures for June
Please do not hesitate to contact myself or any of my retail colleagues if you require any further information.
Key Messages
- Retail sales (exc fuel) grow by +9.6% y-o-y in June
- Ongoing healthy consumer demand
- Implied shop price inflation of 2.2% below CPI of 2.5%
- Y-o-y food growth of +1.1% despite challenging comp
- Food sales overcome miserable weather and limited Euros uplift
- Non-food sales grow +29.1% y-o-y
- All non-food categories except chemists record growth
- Fashion sales +43.8% y-o-y
- Online sees record yearly and monthly declines
- Online sales down -8.7% y-o-y, -4.7% m-o-m
- Online penetration recedes by 180bps to 26.7%
- Online grocery down -9.0% y-o-y, -2.8% m-o-m
- Online grocery penetration shrinks to 10.0% as consumers return to stores
- Online pure-plays down -6.5% despite Amazon Prime Day
- ‘Freedom Day’ sees further restrictions ease
- Potential staff shortages a concern for many retailers.
1. What we learned from the ONS retail sales figures for June
The Summer of Spend continues. The underlying picture from latest release from the ONS is of sustained, and indeed, accelerating consumer demand as restrictions are eased. However, much of the media interpretation of the data is bewildering.
Context is everything. The radio news bulletin I heard before digesting the full release proclaimed that “retail sales had recovered from a dip the previous month, driven by strong food sales on the back of BBQ weather and the Euros”. Wrong on every count. Year-on-year sales growth of +23% in May hardly constituted a dip, growth last month was driven primarily by non-food rather than grocery, the business end of the Euros (the play offs) were in July, so outside this reporting period. And June was a complete wash-out weather wise. But why let the truth get in the way of a lazy story.
In terms of the purest and most meaningful headline numbers: retail sales values (exc fuel) were ahead year-on-year by +9.6%, while volumes (exc fuel) were up +7.4%. Including fuel, the figures were considerably higher (values +13.1%, volumes +9.7%) reflecting a considerable spike in petrol sales as general mobility increased.
True to form, economists majored on the meaningless month-on-month figures and their forecasts were largely satiated too (for what they are worth). M-o-m retail sales values (exc fuel) were up +1.4% and volumes (exc fuel) grew by +0.3%. The seasonality of retail is such that we always spend more in June than we do in May, so these figures are largely spurious.
If context is everything, what is the bigger picture? The comparable month last year saw the lifting of Lockdown 1. “Non-essential” retail was able to open again from 15 June 2020, although hospitality remained closed. Half a month’s trade makes for a slightly more demanding comp than in April or May, but is still relatively soft on the non-food side. Headline growth of +9.6% in June 2021 may seem considerably lower than the preceding months (April +38%, May +23%), but is hardly pedestrian.
In the corresponding period last year, food sales were still booming – initial stockpiling had receded, but foodstores generally were still seeing strong sales as hospitality remained shut and the comp base for them is far more challenging. In the event, foodstore sales grew +1.1% in June 2021, a strong performance given the +7.3% comp the previous year.
These figures sharply contradict others released by Kantar earlier in the week. Kantar’s figures showed that grocery sales declined -5.1%. Important as it is to stress that the reporting periods were different (Kantar’s figures were for the 12 weeks to 11 July) there are still question marks. Kantar’s figures relate to a longer trading period and include the full uplift of the Euros (the final itself being on 11 July). In which case, it seems difficult to discern any Euros uplift at all.
Non-food was in fact the primary driver of growth (+29.1% vs a comp of -17.8% in June 2020). All non-food categories bar chemists (-25.8% vs a comp of +111.2%) enjoyed varying degrees of growth, spearheaded by Music & Video Recordings (yes really, +170.1% vs -43.4%), Carpets (+147.0% vs -25.0%), PCs / Mobile Phones (+89.8% vs -50.3%). Clothing sales continued their post-lockdown bounceback, growing +43.8% (vs -34.7%), while Footwear fared better still (+63.6% vs -46.0%).
If follows that those categories that traded well during COVID reported more modest growth this June. Electricals were ahead by just +3.1% (vs +16.2%), while Garden Centres and Pet Food stores grew by just +0.8% (vs +18.3%). DIY proved an outlier to this, again achieving double-digit growth (+13.2%) despite a strong comp (+13.8%). Growth-on-growth, clearly something of a boom time for the DIY operators.
Online cheerleaders had precious little cheer. The “repeat-it-often-enough-and-it-becomes-true” mantra of a massive, permanent shift to online during the pandemic carries less weight with each passing month and June certainly marked an accelerated return to more normalised levels.
As a collective whole, online sales declined y-o-y by -8.7% in June (-4.7% m-o-m), the worst ever monthly performance. Online penetration dipped by a further 180bps to 26.7%, making a mockery of those that continue to cite high water mark figures of 36% as the “new norm”. Realistically, these figures are likely to stabilise around 22-25% in the medium term.
Online sales declined sharply across the board. Online grocery sales declined y-o-y by 9.0% (-2.8% m-o-m), reducing online grocery penetration to 10.0%. Again, this figure is ultimately likely to settle in high single-digits (ca. 8-9%), before resuming a more realistic (and not insubstantial) growth trajectory.
Non-food online sales dropped -11.3% y-o-y (-8.0% m-o-m) as the flight back to stores continued. Online sales through department stores slumped -37.6% y-o-y (-24.8% m-o-m). John Lewis and Partners take note. But Clothing bucked the overall online trend, growing +5.0% y-o-y (+0.2% m-o-m). Overall non-food online penetration receded by 190bps to 23.1%.
Perhaps the biggest surprise in the overall release was the performance of Non-Store Retailers (i.e. online pure-plays) in June. Year-on-year sales declined by -6.5%, while month-on-month sales were down -2.6%. This was despite Amazon launching a Prime Day on 21 June and others operators responding with their own versions. This would ordinarily provide a significant fillip to the online numbers that simply didn’t materialize this time around.
Usually quick to raise the alarm bell on any hint of inflation, a key element of the ONS release seems to have passed the economist community by. For the first time in a very long while, there is tangible inflation in June’s retail sales figures. The difference in values and volumes suggests shop price inflation of ca. 2.2%, slightly lower than the overall figure for CPI of 2.5%.
Inflation in food is still fairly minimal at 0.8%. Non-food inflation was slightly higher at 3.9%. Compare this with implied inflation in fuel (25.6%). Put simply, petrol prices are rising far faster than most shop-bought goods. Key categories such as Clothing (4.5%) and Household Goods (6.2%) are inflationary, but only Carpets (16.8%) and Second Hand Shops (12.5%) are in double-digits.
Any cause for concern? Not at this stage. Leaving the second-guessing on interest rates to others with expertise in that area, shop price inflation only becomes a major worry if it proves a constraint on overall demand. And there is no indication to date that this is the case. Whatever any economist may argue, deflation is far more damaging for retailers that any inflation ever could be.
Where do we go from here? Freedom Day was never going to the frenzied bonanza the media made it out to be. But obviously any easing of restrictions is going to provide a further boost to the retail economy.
The monthly distortions will take a long time to wash through, so expect more weird and wonderful figures from the ONS in July. For the first time since March, the comp base next time will be a full month of non-lockdown last year, albeit the headline comp in non-food is not especially demanding (-6.5%). Food growth in July 2020 eased to +3.8%. The Kantar figures from July suggest only a marginal fillip from the Euros, but salvation may have come since in the shape of a prolonged spell of good weather.
As we’ve said so many times before, it’s less about the numbers, much more about the bigger picture. And the bigger picture is a positive one – of consumers happily spending and helping retailers back on a very slow road to recovery.