Retail sales: crisis, what crisis?
This week’s Retail Note focusses on the official retail sales release for June from the ONS. The figures were significantly better than expected on virtually every count, with online the only real blot on the copybook.
7 minutes to read
Key Messages
- June’s retail sales figures boosted by extended Jubilee week-end.
- Retail sales values grow y-o-y by +1.7%.
- But volumes down y-o-y by -5.9%.
- Retail sales values (exc fuel) up +1.3% m-o-m.
- And retail sales volumes (exc fuel) up +0.4% m-o-m.
- Food sales +2.5% y-o-y, non-food +3.3%.
- Demand slowdown evident in some discretionary categories.
- Electricals -14.0%, PCs and Telecoms-11.0%, DIY -17.1%.
- Clothing demand remains very strong (values +12.1%, volumes +4.6%).
- Online the main drag on overall retail sales performance.
- All online sales decline -9.9% y-o-y, -2.7% m-o-m.
- Online grocery sales down -13.4% y-o-y, -1.2% m-o-m.
- Online penetration declines by -110bps to 25.3%.
- Implied shop price inflation of 7.6% slightly lower than headline CPI (9.1%).
- Weather likely to be the key determinant in July’s figures.
Nothing to see here. Those looking for definitive evidence of a consumer collapse would be sorely disappointed with today’s retail sales figures from the ONS. A reflection of some pinch points maybe, but no meltdown.
Of course, the June figures were bolstered by the extended Jubilee week-end. That was always going to be the case. It seems churlish that many are simply dismissing today’s figures as a fluke purely on that basis. The Jubilee week-end was a reality for most retailers and the retail calendar is (and has always been) characterized by a combination of organic growth, seasonal trends and non-recurring events that provide one-off incremental growth. June’s growth was no more artificial than any other month’s on this basis.
The headline numbers
Usual caveat / monthly rant that month-on-month comparisons are meaningless, yet are the most widely reported figures. And so it has proved once again. The media and economist community are majoring on the fact that volumes were down -0.1% m-o-m, which was a better performance than most expected (consensus forecast was -0.3% m-o-m).
Had they interrogated the far more meaningful numbers, they would find a far more positive story still. Retail sales values (exc fuel) were up +1.7% year-on-year, despite a very demanding comp in 2021 (+9.0%) as the post-lockdown boom was still playing out. Excluding fuel, on a month-on-month basis retail sales were up in both value (+1.3%) and volume terms (+0.4%).
Expressed in layman’s terms: we bought +0.4% more stuff in June than we did in May and spent +1.3% more. And economist consensus forecasts were very wrong (-0.3% vs +0.4%).
That is not to say that each and every metric was a triumph by any means. Inflation is very clear in many of the numbers, not least in the fact that year-on-year volumes (exc fuel) were down -5.9%. There is also some evidence of a significant slowdown in demand in some of the more discretionary household goods sectors. And online was a huge drag on performance across the board.
June performance by sub-sector
Significant variances by sub-sector as usual, with the post COVID weird and wonderful comp base continuing to skew the numbers to a certain degree (June 2021 figures in brackets). The Jubilee week-end was always likely to boost food sales and this duly came to pass. After a number of challenging months, grocery sales rose +2.5% y-o-y (vs +0.8%), although volumes were down -5.8%. One interesting nugget in the grocery numbers was that specialist foodstores (i.e. delicatessens etc) saw a surge in demand in both value (+16.0%) and volume (+5.7%) terms. Counter-intuitive evidence of consumers trading up rather down during a time of supposed crisis.
Non-food was also firmly in positive growth territory at +3.3% y-o-y, despite a highly challenging comp (27.4%). But, of course, this belies significant polarities between individual non-food categories. The key message on the non-food side is that clothing sales remain very buoyant in both value and volume terms. Clothing sales values were up +12.1% (vs +41.2%) and volumes were ahead +4.6%. To spell this out, in clothing we bought +4.6% more stuff and spent +12.1% more. Again, limited evidence of belt-tightening.
The performance of more discretionary bulky goods was far more nuanced. There was a discernible slowdown in demand for electrical goods (-14.0%) and PCs & Telecoms (-11.0%), while DIY had a particularly miserable month (-17.1%), albeit against a strong comp the corresponding month last year (+17.2%). In contrast, demand remained fairly strong for furniture (+3.8% vs +28.0%). Carpets continued to fly (pun completely intended), with sales up +21.7% y-o-y, despite a ridiculous comp last time (+90.6%).
Q2 performance
Of course, with the June figures come the full Q2 outturn numbers. For Q2 as a whole, retail sales values (exc fuel) were up +1.5%, but volumes were down -6.1% y-o-y. On a quarter-by-quarter basis (i.e. Q2 vs Q1), values (exc fuel) were up +1.6% and volumes were down -1.2%. In Q2, food sales were up +1.3% y-o-y, with non-food higher at +3.8%. Clothing sales were up +12.8% in value and +4.3% in volume. A slight slowdown maybe and undeniable inflationary challenges maybe, but again, the quarterly figures do not scream crisis.
Online – unprecedented declines
The main drag on retail sales performance for some months has been online. The unwinding of the artificial peaks seen during lockdown was inevitable, but the anticipated levelling off process has yet to materialize.
Not one positive figure in any of the online metrics. All online sales declined -2.7% m-o-m and -9.9% y-o-y and online penetration reduced by a further -110bps to 25.3% (my unofficial calculations which override previous ONS revisions and adjustments have this figure closer to 23%). Online grocery declined by -1.2% m-o-m and -13.4% y-o-y, reducing online grocery penetration to 8.7% (considerably lower than the 20%+ some were forecasting a couple of years back…)
A broadly similar story in online non-food (-1.8% m-o-m, -9.4% y-o-y), with some polarization in fashion (-2.4% m-o-m, -4.8% y-o-y) and household goods (-2.7% m-o-m, -18.6% y-o-y). Online pure-players saw sales decline -3.8% m-o-m and -9.1% y-o-y. Possibly some bounce back to come in the July figures on the back of Amazon Prime Day (12-13 July), but a desperately disappointing performance nonetheless.
The inflation picture
Comparing the implied inflation figures from the ONS retail sales release with ‘headline’ data remains an interesting exercise. Fuel (a non-retail category) is far and away and the most inflationary sub-sector at 36.4%. Stripping this out of the equation, ‘shop price inflation’ was 7.6% in June, still somewhat lower than the ‘headline’ CPI figure of 9.1%.
Inflation is generally higher in supermarkets (8.3%) than in non-food stores (7.0%), with some significant outliers. Inflation is running highest in furniture (12.1%), DIY (10.4%) and garden centres/petshops (10.2%). Inflation is also higher than average in carpets (9.0%), yet demand is soaring. Proof that there exceptions to every rule…
At the other end of scale, some sectors remain true to form. Inflation is virtually non-existent in electricals (0.1%) and PCs & Telecomms are actually deflationary (-3.6%).Difficult sectors to operate in at the best of times, the current rising cost environment is proving particularly punishing for operators in the electricals sector.
Where now?
Where do we go from here? Given the timelag in the release of the ONS figures (one month in arrears), we always have the luxury of some feel for the numbers in advance. In the absence of a “special event” such as the Jubilee and any discernible seasonal boost, July will have to rely purely on organic growth. In this regard, the eyes have been very much on the weather and this could go either way – warm weather is ordinarily good news for the retail sector, but was it too hot?
In any event, I would venture that July will show a month-on-month decline in both volume and value terms. Unlike the media and economist community, I wouldn’t necessarily assume the worst from this and interpret it as a sure-sign of recession. The situation is far more complex, but also in many ways, fairly simple – consumers are still spending. July will show a healthy year-on-year sales value increase (particularly as the comp base becomes less challenging), but volume growth will remain elusive.
Personally, in an effort to understand what is happening in the retail market, I will be watching the weather forecast in the coming months as much as I will be following developments in the political and macro-economic arenas.