Any evidence of the ‘cost of living crisis?’
This week’s Retail Note analyses the February retail sales figures from the ONS, which mark two years since the onset of COVID, but provide limited evidence of the impact of the ‘cost of living crisis’ – yet.
7 minutes to read
Key Messages
- Very conflicting / contradictory interpretations
- Little evidence of a tangible consumer impact to date
- Y-o-y retail sales values (exc fuel) +11.1%
- Y-o-y figures inflated by lockdown-affected comp in 2021
- M-o-m values (exc fuel) +0.3%, volumes -0.7%
- Heavy inflation apparent in the figures
- Y-o-y sales: Clothing +108%, Footwear +98%, Jewellery +71%, Carpets +332%
- Online sales down -18.1% y-o-y, -0.7% m-o-m
- Online grocery sales down -24.1% y-o-y, -2.6% m-o-m
- Online grocery penetration declines by ca. -100bps to 8.9%.
Down a depressing -0.3%. Or up a healthy +10.2%. Or even up a barnstorming +15.0%.
Frankly, the numbers are immaterial. There were always going to be three schools of interpretation of the February retail sales release, rendering the actual figures irrelevant. Not just totally contradictory, all three schools of interpretation are actually deeply flawed. Take any interpretation of them with a heavy pinch of salt.
1. Month-on-month retail sales volumes
The least meaningful of all three interpretations and the one that was always going to paint the most negative picture. But the one that nevertheless supports the ‘cost of living crisis’ narrative. So, no prizes for guessing which one the media and economist community have gleefully latched onto…
Retail sales volumes in February declined month-on-month by -0.3% (-0.7% exc fuel). Shock horror, a clear sign that hyper-inflation, escalating fuel prices and the pending energy price hikes have prompted the UK consumer to retrench massively, resulting in a significant decline in demand that will only get worse as the crisis unfolds. Journalism hitting new heights of laziness.
Retail sales volumes were always going to be down month-on-month in February. In small part, this was because January’s figures were very strong. But what does “retail sales volumes being down” actually mean? It means we bought less stuff, not necessarily that we spent less money. So, we bought less stuff in February than we did in January. But in any given year, we always do – the seasonality of retailing means that February is always the quietest month in the retail calendar.
Needless to say, the month-on-month volume figures were the only negative headline figures in the whole release. The m-o-m value figures (i.e. money actually spent) were actually positive (+0.7% inc fuel, +0.3% exc fuel), but the implied inflation undeniably takes some of the gloss off otherwise respectable figures.
Month-on-month figures are meaningless, any interpretation thereupon is worthless. Which probably dismisses everything you will read about these figures in the media today and in the coming weeks.
2. Pre-pandemic comparisons
Another media obsession – “pre-pandemic comparisons”. For months, the ONS has valiantly endeavored to put retail sales into this context by comparing spend for that month versus February 2020. The logic may appear sound (that was the last full month before COVID really took hold and we entered lockdown for the first time in March), the practice anything but. Again, it doesn’t factor in the seasonality of retailing and all they are effectively doing is comparing spend in a busy month against an extremely weak one in the dim and distant past.
Today’s figures are slightly more relevant than usual in that the comparison is not seasonal and the February 2022 figures mark a two year anniversary. Rather than comparing apples with bananas, pears, strawberries etc, we are at least comparing Coxes with Granny Smiths.
In direct contradiction to the month-on-month figures, the “pre-pandemic comparisons” are unduly positive. Retail sales values (exc fuel) were up +9.6%, while volumes (exc fuel) were ahead by +4.0%. Including fuel, the numbers were more positive still (values +10.2%, volumes +3.7%). So, last month we spent around +10% more than we did in the month prior to the COVID onslaught.
The flaws in the “pre-pandemic” metrics? Mathematically, they are only comparing one month in isolation and as such, they do not factor in the substantial spend that was lost during the pandemic. An indexed chart may show we have recovered to “pre-pandemic levels” overall, but does not do justice to the black hole of lost spend in the intervening period. More generally, the above “pre-pandemic levels” narrative implies a false sense of recovery that can only really be achieved when this lost spend has been fully clawed back. We’re getting there, but we’re not there yet, in the simplest of terms.
The month-on-month figures paint too negative a picture, the “pre-pandemic” comparisons too rosy a one. The reality is somewhere between the two.
3. Year-on-year retail sales values
Even the usual go-to most meaningful year-on-year value figures need substantial qualification. As with those for January, the comp base is heavily skewed, with demand this time last year heavily skewed by Lockdown V3. A unchallenging 2021 comp overall (-1.3%), but huge polarities between food (+7.0%) and non-food (-22.8%) make for another month of massively distorted numbers.
The headline figures are thus: retail sales values (exc fuel) were up +11.1% y-o-y in February (inc fuel +15.0%). For all the belt-tightening media narrative, y-o-y volumes were also very much in positive territory (+4.6% exc fuel, +7.0% inc fuel). Unsurprisingly, the implied levels of inflation were therefore much higher if fuel is included (ca. 8%) than excluded (ca. 6.5%).
In terms of sub-sector performance, basic mathematics dictate that those that suffered a lockdown-driven slump last year saw spectacular growth this year, and, of course, vice-versa. The grocery market definitely fell into the latter camp, with y-o-y sales down -2.2% in February against last year’s lockdown spike of +7.0%.
Non-food sales rebounded by a massive +36.8% (2021: -22.8%) as pent-up demand continued to be released. High street categories such as Clothing (+108.2% vs -53.0% in 2021), Footwear (+98.3% vs -50.0%), Jewellery (+71.0 vs -33.8%), Books/Stationery (+86.0% vs -60.1%) and Cosmetics (+35.0%
Vs -19.4%) largely spearheaded the wider non-food rebound.
Much more of a mixed bag amongst the traditional OOT retail categories. DIY sales were down -6.9% against a tough comp (+25.2%), whole Carpet sales skyrocketed +331.7% against a weak comp (-56.7%). Furniture was strong (+35.3% vs -20.1%) while Electricals were more muted (+1.2% vs +11.7%). The star performing category was arguably Garden Centres / Pet stores, which achieved strong growth-on-growth (+16.9% vs +30.5%).
Inevitable further unwinding of online sales as lockdowns thankfully recede further into the memory. Every single online metric (every category, both m-o-m and y-o-y) firmly in negative territory. For the retail sector as a whole, online sales declined by -0.7% m-o-m and by -18.1% y-o-y. The decline in online grocery was significantly steeper than this (-2.6% m-o-m, -24.1% y-o-y) and online grocery penetration dipped by a further -100bps to just 8.9%. With every passing month, many of the projections made during the pandemic seem increasingly ridiculous.
Non-food online sales declined -0.9% m-o-m and -32.0% y-o-y, with Household Goods (-2.3% m-o-m, -45.6%) seeing considerable levels of unwinding. Pure-play operators (-0.1% m-o-m, -4.3%) fared slightly better than their multi-channel counterparts.
Every single online metric in significant reverse but overall retail sales in growth - yet by some quirk of mathematics, the ONS data shows an increase in online penetration to 27.8%. My mathematics (admittedly limited to an ‘A’-level some 34 years ago) have this figure at sub 25%, maybe even closer 24%. But who am I to argue?
Reading between the lines
Highlighting the flaws and limitations of the various interpretations of the retail sales data is the easy part, discerning what is actually happening on the ground is a much bigger ask. At the same time, there is little merit in blindly jumping on the ‘cost of living crisis’ narrative without questioning the realities.
Reading between the lines, real as the ‘cost of living crisis’ may be economically, there is limited evidence to date of it having a material impact on overall consumer spending patterns (‘to date’ being something of the operative word). The retail sector generally is firmly in recovery mode and nationally (though obviously not universally) there is still pent-up demand that is slowly being released. For all intents and purposes, those that have money and are willing to spend it are outweighing those less fortunate/privileged, who are maybe at the far sharper end of the ‘cost of living crisis’.
What to expect in the coming months? Annualisation of the rebound in retail sales is on the horizon as we emerged from Lockdown 3 last year. The y-o-y comp base becomes increasingly challenging (March: +7.2%, April: +36.8%, May: +21.4%) which will heavily skew the numbers in a negative way and seemingly add growing credence to the ‘cost of living crisis’ narrative.
The numbers may be immaterial, but at the same time, don’t believe all you consume in the media…