The Retail Note | Retail sales: as bad as the weather
This week’s Retail Note analyses the official retail sales figures for April from the ONS, which were, quite frankly, terrible.
7 minutes to read
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Key Messages
- Adverse weather had a massively negative impact in April
- Retail sales values (exc fuel) down -1.5% YoY
- Only 12th month on record to see a monthly YoY decline
- Retail sales volumes (exc fuel) down -3.0%
- MoM volumes down -2.3%, despite a weak comp (March -0.2%)
- Implied shop price inflation (1.5%) lower than CPI (2.3%)
- Some non-food retail sectors already deflationary
- Retailers slashing prices in the face of weak demand
- Strong performance in cosmetics, music & video, charity shops
- Very weak demand in furniture, jewellery, sports & toys
- YoY grocery sales down -0.1% (vals) and -2.8% (vols)
- YoY clothing sales down -9.8% (vals) and -10.9% (vols)
- Despite adverse weather, online sales also decline
- Online sales down -1.5% YoY, -1.2% MoM
- Forthcoming ‘summer of sport’ unlikely to stimulate retail demand
- Consumer demand ultimately remains highly sensitive to the weather
Bad. Terrible. Dire. Appalling. Take your pick, there is absolutely no way the retail sales figures for April can be dressed up. The COVID months aside, quite possibly the worst month since records began in the late 1980s. The timing of Easter may have been a minor distorting factor, but the weather was a far more influential one.
The headlines…
Dispensing with the largely meaningless month-on-month comparisons that the ONS lead on and the only currency the economist community seem to understand, the year-on-year figures make for grim reading. Retail sales values (exc fuel) actually fell in April by -1.5%. For all the trials and tribulations of the retail sector, that barely ever happens. In fact, this was only the twelfth month retail sales values have been in negative growth territory since 1989. Four of those were during COVID, two during the GFC. Not a good look.
Volumes also nosedived. Having just about limped into positive territory during Q1, retail sales volumes (exc fuel) declined by -3.0% in April. Volume declines are a more frequent occurrence (there has been 85 occasions since records began), but only around 20 times have they been worse than -3.0%. And most of those have again either been during COVID or over the last two years when high inflation has been a massive thing. Not a good look, either.
An optimist could point out that April’s -3.0% volume decline is not massively worse than the running monthly average of -2.7% witnessed throughout 2023. That optimist needs to wake up and smell the coffee. High inflation drove a wedge between value and volume growth in 2023, inflating the former, depressing the later. Now inflation is easing (more of that to come and, spoiler alert, nor is that necessarily a positive either), values should decline gracefully and volumes should grow. Both have unceremoniously collapsed. Certainly not a good look.
Declining inflation – be careful what you wish for
Mild disappointment earlier in the week that inflation hadn’t fallen as much as expected. An earlier release from the ONS showed that CPI inflation declined from 3.2% in March to 2.3% in April vs BoE and consensus forecasts of 2.1%. This already made a June interest rate cut unlikely, before this news was superseded by the subsequent calling of a general election for July.
The retail sales figures send out a very different message from the high street judges. In very simple terms, inflation in retail is much lower than in the wider economy. Implied shop price inflation from the April retail sales release is significantly lower at just 1.5% (1.3% inc fuel). Within this grocery (2.7%) is comfortably higher than non-food (0.2%).
Declines in food price inflation are, on the surface, good news (at least they would be if grocery retail sales values hadn’t declined by -0.1% too), but there are major alarm bells in the non-food inflation figures. A large number of non-food categories are already deflationary, including PCs & Telecomms (-17.8%), electricals (-3.5%), DIY (-2.7%), household goods stores (-1.5%), garden centres & petstores (-0.6%) and textiles (-0.5%).
Lower inflation has been craved for so long, why do these figures raise concern? Declining prices on the back of unwinding input costs is one thing, retailers desperately slashing prices in the face of exceptionally weak consumer demand is another entirely. And these figures smack as much of the latter as they do the former.
Performance by sub-sector
Any bright spots at all in the wider sector breakdowns? A few. Demand for cosmetics remains resolute (values +8.3%, volumes +5.1%), while second hand shops (+18.8%, +17.1%) continued to enjoy a delayed response to the cost-of-living crisis. Consistent with the bad weather theme, music and video recordings had a bumper month (+18.1%, +17.4%).
These were the only three categories to achieve the ‘holy trinity’ of value and volume growth and inflation, along with specialist food stores (+4.3%, +1.8%, 2.5%). Seemingly robust demand for PCs & Telecomms (+46.3%, +64.1%) and Textiles (+12.3%, +12.8%) was blighted by deflation, while medical goods (+7.3%, -1.2%) failed on the volume side.
Some horror stories at the other end of the performance spectrum. Another awful month for clothing (-9.8%, -10.9%) and footwear (-8.1%, -9.6%). The worst performing sectors were furniture (-14.4%, -15.2%), jewellery (-11.6%, -13.4%) and sports & toys (-10.2%, -11.1%).
Month-on-month performance
None of the analysis above was reported in the ONS narrative, so little will be picked up in the media. For what they are worth (not a lot), the official figures doing the rounds are equally bad. Retail sales volumes fell month-on-month by -2.3%. Ordinarily, the timing of Easter would render MoM comparisons even more meaningless than usual, but there is a rare significance this time around. The figures for March were revised down by the ONS to -0.2% (from 0.0% originally). Whatever the figures may say, the stark message is that Easter did not provide any discernible uplift to retail spending.
Staggeringly, no mention of MoM value performance in the ONS narrative. Ironically, some of the most useful stats relate to the weather (borrowed from the Met Office). April 2024 was a “dull and wet month” (no kidding), receiving 155% of average rainfall and just 79% of average sunshine hours.
These weather conditions would normally play into the hands of online, but they only did to a moderate degree. Online sales actually declined by -1.2% MoM and -1.5% YoY. The YoY decline was fully commensurate with overall retail sales (-1.5%), the MoM one not quite as bad (-1.2% vs -2.3%). Online penetration grew from 26.2% to 26.5%, less on the back of a surge in online demand, much more on an contraction of spending overall.
Some perspective
It’s always dangerous to read too much into one month’s retail sales figures. But two consecutive bad months is a slightly worrying direction of travel, particularly as those two months include Easter, one of the busiest seasons in the retail calendar.
Ironically, these figures fly firmly in the face of improving narrative around the consumer. Consumer confidence indicators are at their highest levels for a couple of years, again underlining the disconnect between how consumers feel and how they actually behave. But many commentators are sticking to the economic textbook regardless. For example, Capital Economics maintain that the “outlook for retailers remains bright despite [a] soggy start to Q2” and “as inflation falls further this year, rising real household disposable income should boost retail activity throughout the rest of 2024”. I doubt it will be anything like as simple as that.
Of course, the old media chestnut of a “summer of sport” boosting consumer spending will be trotted out ad infinitum in the coming weeks and months. Except that is actually a media myth, with no empirical evidence to support it. Major sporting events such as the Euros can actually prove detrimental to retail spending, especially if big matches occur on prime shopping days at the week-end. Few retailers actually benefit from an incremental increase in demand – the grocers maybe, but only if the weather plays ball too.
A summer of sport is unlikely to provide salvation – a turn in the weather just might.