Retail sales: off to a dubious flyer in January
This week’s Retail Note analyses the official retail sales figures for January from the ONS, which showed an unlikely rebound.
8 minutes to read
To receive this regular update straight to your inbox every Friday, subscribe here.
Key Messages
- Very strong retail sales figures for Jan stretch credibility
- Retail sales values +3.9% MoM, volumes +3.4%
- Falsely implies we spent more in Jan than we did at Xmas
- Non-adjusted data shows Jan spend -39% lower than Dec
- Jan YoY sales values were up +5.2%
- In keeping with the monthly run rate of 2023 (+5.3%)
- But a positive return to YoY volume growth (+0.7%)
- Driven by tangible return to grocery volume growth
- Grocery values +7.2%, volumes +0.6% YoY
- Good month for off-licences, garden centres, cosmetics
- Bad month for chemists, carpets, electricals, jewellery
- Clothing demand remains a concern (vals -3.3%, vols -8.4%)
- Terrible month for online (vals -4.1% MoM)
- Online YoY val growth of +1.0% far lower than retail sales (+5.2%)
- Online penetration declines by -200bps to 24.8%
- Seasonality remains an under-appreciated reality of retailing
The retail sector feels subdued. After a fairly buoyant Christmas, the mood amongst retailers at the moment now feels measured, rather than exuberant. Earlier retail sales releases from other bodies supported this largely anecdotal assessment. The BRC reported that spending grew by just +1.2% in January, and stripping out inflation, volumes were implicitly firmly in negative territory (-3% to -4%). A fairly bleak assessment, but at the same time, probably an undercook on retail reality.
And then along comes the (revamped) ONS release, which could not contradict any of this any more if it tried. According to the ONS, retail sales absolutely flew in January, rebounding massively from a slump than nobody actually experienced in December. The “largest monthly average rise since April 2021” no less and more significantly still, a return to volume growth, wait for it, in both food and many non-food categories.
If only this were credible. In any shape or form.
The headlines
The favoured (but largely meaningless) month-on-month figures seem a good place to start. According to the ONS, m-o-m retail sales values rebounded by +3.9% in January, while volumes were up +3.4%. Cue much premature rejoicing in the economist community and widespread talk of “an end to the retail recession”.
If only. The notion that we bought +3.4% more stuff and spent +3.9% more in a dreary non-descript January than we did at Christmas is clearly nonsense. The predictable media narrative of “strong January sales” doesn’t stack up either. The peak January sales period is actually the days immediately after Christmas (26th – 31st) rather than in January itself. The latest January ONS release relates to the period 31 Dec – 27 Jan. The January sales figures were therefore largely included in the hugely disappointing December release. The supposed spike in demand in January was due to other, largely inexplicable forces.
A lot of these headlines can be debunked by delving deep into the lesser-known ONS Retail Pounds Dataset, which is the rawest of raw, or purest of the pure, depending on the depth of your interest in consumer trends. Here, not surprisingly, a totally different (but far more credible) picture emerges. We spent £32.5bn in January vs £53.6bn in December. So, -39% less, rather than +3.9% more, as the headline release suggests. Of course, the ONS does “seasonally adjust” the numbers and these “level out” (i.e. reduce) the December spend to £43.8bn and increase the January spend to £36.3bn. Even with these fudges, a decline of -17% is still vastly different to reported growth of +3.9% - a residual difference that the ONS puts down to additional “calendar adjustment”. Hmmmm….
The YoY figures
Which, of course, blows the lid completely on the limitations of the month-on-month figures and why they have so little weight, but are bizarrely still such a strong currency in some circles. The year-on-year figures may not be perfect, but at least they have more meaning (as any retail analyst worth their salt gets taught on their first day in the job).
Retail sales values (exc fuel) grew year-on-year by +5.2% in January, strong growth but nothing out of the ordinary. Despite all the negative narrative, this is almost entirely in keeping with the monthly run-rate of 2023 of +5.3% (and, indeed, final FY2023 outturn figure). Consumers are still spending – as they have all along.
But the main positive was in the volume figures, which showed year-on-year growth of +0.7%. This marked only the second month of positive volume growth since March 2022, the other being a Black Friday-influenced November 2023 (+0.6%), which book-ended a slightly dubious looking decline in December (-2.1%).
The main driver behind the return to volume growth in January? A return to volume growth in food. This was widely telegraphed by the major grocers in December (even before), but failed to show in the ONS December figures. But better late than never. And with that a slight suspicion that the ONS figures may actually be lagging reality, the generally positive outturn of Christmas only being evidenced now in the January figures.
The implied ‘shop price’ inflation figures from the ONS retail sales figures were 4.5%, stable on the same figure in December. At least some consistency with other ONS statistical releases this week.
Performance by sub-sector
Weird and wonderful divergences in performance of the various retail sub-sectors as ever, some more credible than others.
Food generally outperformed non-food, which is highly credible. Grocery sales values were up +7.2% y-o-y, while volumes were up +0.6%, as already flagged. Implied inflation in grocery is still at 6.6%. Non-food sales values were up by a more modest +2.8%, but volumes were down by an encouraging -0.1%. Implied inflation in non-food is just 2.9%.
Major disparities in non-food sub-categories. The best performing category by far was Music & Video (values +41.3%, volumes +34.0%). Even more intriguingly, the second best performing category was Alcohol Specialists i.e. off-licences (+29.5%, +26.8%). This was despite it having the highest level of implied inflation (13.4%). So much for a cost-of-living crisis and as for a Dry January, well…
Other categories to enjoy both value and volume growth included garden centres/petstores (+19.4%, +26.8%), cosmetics (+13.6%, +9.0%) and sports/games/toys (+7.2%, +3.1%). Again, the suspicion here is that some of Christmas demand is being reported in the January numbers.
At the other end of the performance spectrum, a number of other sub-sectors faltered badly. Unbelievably for January, chemists performed very badly (-16.6%, -18.4%), as did sectors that would normally expect a post-Christmas uplift, such as carpets (-7.3%, -7.7%) and electricals (-5.5%, -4.8%). Clothing had another very bad month (-3.3%, -8.4%) and this remains the major concern for the high street for the rest of the year.
For a more detailed and visual analysis, please refer to our accompanying dashboard for January 2024.
Online decline
The revamped ONS release is far lighter on detail, especially around online. But, paradoxically, slightly the more credible for that.
Either which way, online had a bad month. Online sales values declined -4.1% month-on-month, significantly underperforming overall retail sales growth of +3.9%. Online volumes must therefore have declined by ca. -7% to -8%. Year-on-year online sales values did grow by +1.0%, but again, this was significantly lower than the retail market as a whole (+5.2%).
For once, this underperformance did also filter through to the ONS’ online penetration figures. Online penetration declined to 24.8% in January, from 26.8% in December. A very telling phrase in the release: “We have updated our sample this month which is a usual process to ensure our sample remains relevant. This update may have affected the proportion of sales made online, which is more sensitive to sample changes than other parts of retail sales and which may therefore be subject to more revision than usual.”
Better late than never.
Some perspective
It’s easy to criticize. And, indeed, call out data that simply doesn’t seem correct. But it becomes harder when it’s an official, unbiased source, with no discernible agenda – which is essentially what the ONS is.
At the same time, it’s dangerous to accept the data wholesale and worse still, to misinterpret or misrepresent it. The economist community has overreacted massively to this morning’s retail sales release. As any retail analyst worth their salt knows, it’s always dangerous to read too much into one month’s retail sales figures.
All the more so since today’s figures relate to January, by far the quietest month in the retail calendar (typically accounting for just 6.8% of the annual total, according to the raw Retail Sales Pounds Dataset). February is a quiet month too (typically just 7.0% of annual retail sales), so we will not our next meaningful read of the state of the retail/consumer economy until we get the March figures in April (which will include Easter).
Economists (and seemingly the ONS) struggle to get their heads around the seasonality of retail. But volatile demand is the reality of retailing and the world that retailers themselves inhabit and trade in. No amount of artificial adjustment can accurately reflect the vagaries of demand that retailers have to contend with on a daily basis.
Rather than wholesale acceptance of today’s ONS figures as a triumph, the underlying picture is far more nuanced. The grocery market is in good health, enjoying sustainable volume growth again, with sales values likely to decelerate slowly in parallel with receding inflation. Non-food spend is far more variable, but should revert to low volume growth later this year. But within non-food, consumer demand for clothing and certain bulky goods remains a concern.
Not one to pour cold water on strong retail figures. But ultimately credibility is king.