What consumer squeeze?
This week’s Retail Note analyses the official retail sales figures release from the ONS for January.
5 minutes to read
Key Messages
- Retail sales values +12.8% y-o-y in Jan
- 3rd best monthly performance on record
- Retail sales volumes +7.2% y-o-y
- Inflation of ca. 5.5% not constraining consumer demand
- Weak comparable of lockdown in Jan 2021
- Non-food sales +41.0% y-o-y
- Clothing sales +73.9% y-o-y
- Online sales down -20.8% y-o-y, -4.5% m-o-m
- Online penetration 25.3%, lowest level since March 2020
- Online grocery down -22% y-o-y, -14.8% m-o-m
- Online grocery penetration recedes -130bps to 9.5%.
An almost inexplicably good set of retail sales figures for January that completely fly in the face of any economic logic. A consumer supposedly so squeezed by spiraling inflation and low wage growth, living in fear of impending energy cost hikes went on an absolute spending splurge in January, buying more and happy to pay higher prices for the privilege. And online was the only area not to benefit.
An oversimplification of course and context is everything. And the key point is that January last year was a month of full lockdown and this massively distorts the numbers. If nothing else, these latest figures underline, once again, how crippling these periods of lockdown were for the retail sector.
The headline stats
The ‘purest’ headline figure (year-on-year retail sales values excluding fuel) saw growth of +12.8%. This marked the third strongest monthly performance since records began, surpassed only by other lockdown-skewed months last year (April +37.5%, May +21.9%). Including fuel, the annual rate of growth was higher still (+16.5%).
Inflation is there to see in the numbers – retail sales volumes were up +7.2% (+9.1% including fuel).
"The implied rate of inflation of ca. 5.5% is consistent with newsflow elsewhere, but is clearly not a deterrent to consumer spending patterns as yet."
Even the less meaningful (but more widely reported) month-on-month figures showed a positive trend, keeping our economist friends happy. Month-on-month retail sales values were up +2.0% and volumes grew +1.7%. The implication that we supposedly spent more in the miserable month of January than we did in the month of Christmas stretches credibility somewhat and raises perennial question marks over the ONS’ methods of ‘seasonal adjustment’. Above all else, it again shows the limitations of month-on-month comparisons.
Even more meaningless are the “pre-pandemic comparisons”. Apparently, retail sales values last month were +9.1% above pre-pandemic levels, with volumes ahead +4.4%. Read into that what you will. My advice would be not too much. We will get a slightly clearer “present vs pre-pandemic” view with next month’s retail sales figures, in that they will provide a full two-year view, rather than months in isolation. A much better basis of comparison and assessment of which sectors have clawed back spend lost during the pandemic.
Sub-sector performance
The disruption of last year’s January lockdown inevitably resulted in weird and wonderful numbers this time around. As we’ve seen throughout the pandemic, those sub-sectors that troughed before are spiking now and vice-versa.
Food sales declined by -2.1% y-o-y in January against a very strong performance last year (+4.7%). The diametric opposite in non-food, which saw growth of +41.0% in January 2022 against a very weak comp base (-26.8%) the year before. Needless to say, this was the third strongest monthly non-food growth on record, eclipsed only by April and May last year.
All non-food sub-sectors were in strong growth territory, with the one exception of chemists (-22.0% vs +43.7% in Jan 2021). Clothing (+73.9% vs -49.3%) and footwear (+80.4% vs -54.4%) both continued to recover trade lost during the pandemic, as did jewellery (+65.0% vs -30.4%). Strongest growth was in floorcoverings (+233.7% vs -43.7%), computers and mobile phones (+78.3% vs -43.7%), books (+73.9%) and music & video (yes, really +61.4% vs -23.0%). The only category achieving the distinction of achieving growth-on-growth was DIY (+10.3% vs +12.8%).
Online recedes further
"The online cheerleaders didn’t have much to celebrate in the January figures and many predictions about the trajectory of e-commerce post-pandemic increasingly seem fanciful at best."
All online retail sales were down -20.8% year-on-year and -4.5% month-on-month. Online’s share of all retail spending declined by a further -130bps to 25.3%, the lowest level since the pandemic struck in March 2020. Of course, this is still comfortably above the level prior to COVID (19.8%), but when the dust settles (with further rebasing inevitable in the coming months) a more normal growth trajectory will resume.
Online grocery continues to recede rapidly (-22.0% year-on-year, -14.8% month-on-month). Significantly, this meant that online grocery penetration reverted back to single digits (9.5%). As one Big 4 grocery retailer said to me during the pandemic: “we started at 7%, got up to 14-15% and ultimately we’ll settle somewhere between the two – I suspect closer to where we came from than where we got to”. Increasingly prophetic words.
Online non-food sales declined -26.7% year-on-year and -10.5% month-on-month. Overturning the trend of recent months, even clothing saw significant online reverses (-17.6% year-on-year, -16.5% month-on-month). Interestingly, online pure-plays out-performed their multi-channel peers in January. Although the pure-plays saw sales decline -15.5% year-on-year, compared to December they were up +4.3% (compared to an overall decline of -4.5%). A significant trend or just further proof of the limitations of month-on-month comparisons?
Where now?
The inflation-induced consumer squeeze narrative remains just that – for all the rhetoric, there is no evidence in these figures to suggest that it is in any way filtering through to consumer behaviour as yet.
Assessing retail sales trends in the coming months is as much an exercise in base mathematics as it is being a retail analyst. Expect more of the same positivity in the February numbers given the dire performance in the corresponding month last year (all retail sales -1.3%, food +7.0%, non-food -22.8%). A bit of an inflection point in March when things started to improve last year (all retail sales +7.4%, food -0.6%, non-food+5.2%). And then the off-the-scale comparisons in April and May (non-food sales +122.7% and +84.7%) which cannot in any way be emulated this time around, but shouldn’t be interpreted as negatively as they inevitably will be by the doom-mongers.
Who’d be a retail analyst?