Online drag on retail sales
This week’s Retail Note analyses the October retail sales figures from the BRC and places them in the context of Knight Frank’s Q3 Retail Monitor.
4 minutes to read
Key Messages
- Total retail sales increase +1.3% in Oct
- Total retail sales +6.3% compared to Oct 2019
- But like-for-like sales slip -0.2%
- Non-food online sales fall -8.0% in Oct
- Acceleration of 3-month average decline of -6.1%
- Q3 data includes a number of encouraging signs
- But also paints a picture of fragility
- All to play for over the forthcoming festive season.
Online drag retail sales. Do not adjust your sets. But clearly a headline you don’t see often, if ever. But not an unfair summation of the latest figures from the British Retail Consortium (BRC).
Stronger consumer demand generally
The headline figure was fairly positive. On a total basis, retail sales increased by +1.3% year-on-year in October. Not spectacular growth by any means, but a marked recovery on September (+0.6%) and a decent outturn given the strong comparable the previous year (+4.9%). On a two-year basis, total retail sales grew +6.3% during October compared with the same month in 2019. The consumer is still spending and many have started their Christmas shopping early.
Non-food was the primary driver of growth. Clothing & footwear and health & beauty continued to claw back sales lost during the pandemic, but there was continued slowdown in household goods. Sales of furniture and electricals declined for a second successive month in October, partially on account of well-documented supply chain issues.
Grocery sales growth was just +0.3%, but against a comparable month last year which saw heavy stockpiling ahead of Lockdown V2 in November, this was a muted rather than a “bad” performance, as the BRC described it.
Online unwinding
But on a like-for-like basis, retail sales declined by -0.2%. Those looking for a negative story predictably majored on this number. And this is where the effects of online were most manifest. By way of clarity, the basic difference between “total” and “like-for-like” sales is new space and not inflation. By definition, therefore, all online growth is like-for-like as notionally it does not involve any physical space. The reality may be very different, but that is the way the numbers are calculated.
Online non-food sales declined -8.0% in October, an acceleration on the three-month average decline of -6.1%. The non-food online penetration rate decreased year-on-year from 48.8% to 42.0%, which, as the BRC was keen to point out, was still 10.4 percentage points higher than the 31.6% recorded in October 2019. With every passing month it becomes clearer that many of the online peaks during lockdown were totally artificial and a supposedly “permanent shift” was anything but.
The bigger picture
The smorgasbord of charts, tables and commentary that is Knight Frank’s Q3 Retail Monitor paints a hugely varied and complex picture of where we are in the recovery phase.
By way of short summary, the consumer generally is still in a fairly good place. Consumer confidence built steadily in the six months to June, before supply chain and labour issues dampened the national mood from September. Confidence has improved but remains fragile. Retail footfall continues to improve, with 89% of consumers comfortable returning to retail destinations. Retail sales in Q3 were up +0.9% year-on-year, but down -3.5% quarter-on-quarter, as the post lockdown boom reverted to more normalised seasonal trading patterns.
But there is still a COVID aftermath in other aspects of the retail economy. High street vacancy rates hit a new high of 15.9% during the quarter, a sobering reminder of the fall-out we have seen. However, there was equally some comfort in the fact that this rate has since plateaued, an indication of some degree of occupier stability. Rents corrected very marginally in Q3 (-0.2%), but with positive growth in some retail sub-sectors, notably retail warehouses.
Evidence of a recovery on the retail property side. Retail capital value growth strengthened by +80 basis points (bps) to +1.6% in September, the strongest monthly performance since 2016. Investment volumes increased +31% year-on-year to reach £1.89bn across 167 deals. Foodstores and retail warehousing remain heavily in favour with investors, the latter accounting for 42% of deal volumes in Q3. Accordingly, retail warehousing yields hardened during the quarter by ca. 50bps to 6.00%. Shopping centre and high street yields were stable.
All to play for now that we are firmly in the run-up to Christmas. So much to look forward to, not least our Christmas predictions and my annual anti-Black Friday rant. A quick teaser question: how can operators with substantial rent arrears afford to sacrifice gross margin in the peak trading period? Only two weeks today (though clearly a lot of retailers and telecoms providers have already jumped the gun). I can’t wait…