Retail sales: the influence of an Indian summer
After a few weeks’ rest, the Retail Note returns. This Note focuses on the official retail sales figures for September from the ONS, which were underwhelming.
5 minutes to read
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Key Messages
- September’s Indian summer a major influence on retail sales
- A boost to grocery, a drag on fashion
- Retail sales values -0.4% m-o-m in Sep, volumes -1.0%
- But retail sales values still increase +6.0% y-o-y
- Y-o-y volumes (-1.2%) best monthly performance since March 2022
- Implied inflation recedes from 7.8% to 7.2%
- Grocery sales surge +9.5% and approach return to volume growth (-0.8%)
- Non-food sales increase +2.6%, but volumes down -2.3%
- Footwear, cosmetics and furniture top performing NF categories
- Clothing sales increase +2.8% vs monthly average of +7.7% YTD
- Online sales slip -1.3% m-o-m, +6.4% y-o-y
- Online penetration declines by -20bps to 26.7%
- Online grocery penetration static at 8.8%
- Weather still as much an influential factor as macro-economics.
For all the madness and uncertainty in the both the macro-economy and world at large, it’s mildly reassuring that some retail truisms still ring, well, true. The rule is that an Indian summer in the UK is great for food retailers, but really bad for non-food retailers, particularly fashion operators. And this is very much the general takeaway from the ONS figures for September.
The ‘headline’ numbers
To address the widely-reported (but largely meaningless) month-on-month figures first, retail sales values (exc fuel) were down -0.4% in September. Retail sales volumes (exc fuel) were down -1.0% m-o-m. Economists got it woefully wrong once again, economist consensus forecasts suggesting a volume decline of just -0.2%. Such as they have any merit, the month-on-month figures showed a rise in food sales of +0.2%, but declines in clothing (-1.6%), department stores (-1.6%) and household goods (-2.3%).
All the m-o-m figures really show is a classic yo-yo. Good month, bad month. Good month, bad month. June good, July bad. August good, September bad. And then largely random assessment as to whether the yo-yo went higher or lower on each occasion. The only surprise in the latest figures is that, due to the seasonality of retailing, we would normally expect September to be stronger than August, the former traditionally being one of higher spend months in the retail calendar. But this year, the yo-yo was out of sync, the unseasonal weather in September no small factor therein.
Y-o-y vs yo-yo
Year-on-year comparisons carry far more weight. With the caveat that September 2022’s figures were negatively affected by the state funeral of the Queen, retail sales values (exc fuel) were up +6.0%. Inflation-fueled maybe, but robust growth nonetheless.
Stripping out inflation, retail sales volumes (exc fuel) were down -1.2%. This was the shallowest decline since high inflation became a thing from March 2022 onwards. Positive in that volume declines are bottoming out, negative in that this is happening less rapidly than anticipated. Realistically, a return to positive volume growth by the end of the year now appears a tall order.
A few crumbs of comfort in the inflationary implications. Implied inflation (exc fuel) from the retail sales figures was 7.2% in September, down from 7.8% in August. But significantly higher in food (10.3%) than in non-food (4.9%). Some categories (e.g. electricals) were actually deflationary.
With the September figures also come the Q3 ones. Q-o-Q retail sales values (exc fuel) were up +0.3%, but volumes were down -1.0%. Y-o-Y retail sales values (exc fuel) were up +5.6%, but volumes were down -2.0%. Not perfect by any stretch, but given the macro-economic backcloth, Q3 could have been so much worse. And no discernible consumer slowdown nor dramatic change of course.
Performance by sub-sector
The weather’s influence was more manifest in the varying performance of the retail sub-sectors. Foodstore sales surged +9.5% y-o-y, with specialist foodstores enjoying a massive +23.5% increase - this despite the highest level of implied inflation (12.2%), an indicator of consumers trading up rather than down. Foodstore volumes were down just -0.8% and some of the major grocery players (e.g. Sainsbury’s and Tesco) are already heralding an overdue return to positive volume growth.
Performance across non-food was very mixed. Welcome as an Indian summer may be generally, it is a nightmare for fashion retailers as they roll-out their Autumn/Winter collections. Hard to sell jumpers, coats and scarves when the temperatures are consistently in the 70s and 80s. Nevertheless, clothing sales did increase y-o-y by +2.8%, although volumes were down -4.3%.
But a number of non-food categories did firmly buck the trend, some reporting both value and volume growth, including footwear (+18.9%, +13.7%), cosmetics (+16.4%, +8.7%) and music & video (+8.9%, +7.1%). Nor does the somewhat lazy assumption that consumers are cutting back on big ticket items ring true e.g. furniture had a very strong month (+6.1%, +2.3%).
Online – rebasing complete
Despite a m-o-m decline (-1.3%), all online sales grew by +6.4% y-o-y. Online grocery grew by +7.9% y-o-y (lower than underlying food growth of +9.5%), while online non-food grew by +5.1% y-o-y (higher than underlying non-food growth of +2.6%).
Online penetration rates increasingly appear to have stabilised after significant post-COVID rebasing. From highs of around 37% during the pandemic, all online penetration is now settling at ca. 26-27%. Online grocery is stabilising at around 8-9%, from highs of ca. 15% during COVID.
For much more colour on this, please refer to our forthcoming thought leadership research reports ‘A Retail Renaissance?’ and ‘Foodstores: a Feeding Frenzy?’. Anticipation and excitement duly acknowledged….
Where now?
September marks the beginning of the business end of the retail calendar. A traditionally high spend month that precedes the three month run in to Christmas (which I flatly refuse to call ‘the Golden Quarter’). An undeniably important period for the retail sector, albeit maybe not quite as ‘make or break’ as it is often portrayed to be.
Cue a frenzy of wild speculation as to how great or terrible the festive period will be (with an inevitable focus more on the latter). Much will be said, much will be written. Very little will be of merit, informed or accurate.
We will produce our own Christmas predictions in the coming weeks. But the narrative isn’t going to change dramatically from the course charted this year. Retail sales values will be up in Q4 / over Christmas, we will spend more than we did last year. Although receding, inflation will still be with us and positive volume growth will be difficult to come by as a result. Retailers are pragmatic, fearing the worst, hoping for the best. But have planned, bought and budgeted conservatively and most should fare well.
Weather-dependent, of course…
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