The Retail Note | 2024: the year that was
6 minutes to read
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This week’s Retail Note focuses on the 2024 full-year retail sales figures from the ONS and analyses where the UK consumer currently is.
Key Messages:
- Retail sales grew +1.6% in 2024
- Lower than short- and longer-term averages (+3.7%)
- A reflection of easing inflation and some v wobbly months
- April, June and November particularly weak
- Volume growth of +0.3% more encouraging
- First year of volume growth since 2021
- Cosmetics, sports/toys/games, textiles standout categories
- Tough year for clothing, furniture, chemists
- Online penetration in 2024FY 27.2%
- An increase of +50bps on 2023
- But year-end figure (27.0%) lower than year-start one (27.5%)
- KF 2025 forecast value growth of +2.0% - +2.5%
- But demand is fragile and will remain highly erratic.
Old news, buried under fake news? Last week’s retail sales release from the ONS contained the full-year outturn figures, yet I’ve not seen these mentioned anywhere - the world seemingly more predisposed to accept the wildly misrepresentative Christmas figures that, perversely, didn’t include Christmas (as discussed in last week’s Retail Note).
The full-year figures may be less (fake) newsworthy, but are arguably more significant. On the one hand, they are subject to far less distortion and adjustment by the ONS (seasonal and calendar) and are therefore much purer. On the other hand, they reflect a longer timeframe and are therefore a better barometer of the state of consumer demand.
The full-year facts
In 2024, retail sales values (exc fuel) grew by +1.6%, while volumes were ahead by +0.3%. The latter a good performance (and within our forecast range of +0-0.5%), the former a slight disappointment (below our forecast range of +2.0% to +2.5%).
In terms of wider context, value growth of +1.6% was a marked deceleration on previous years and below both the 10 year and long-term (35 year) average (both +3.7%). Excluding the blip COVID year of 2020 (+0.7%), this was the lowest level of spend growth since 2005 (+0.9%). The doom mongers could flag it as the third ‘worst’ year on record.
Some qualification: the deceleration in value growth was an inevitable by-product of reducing inflation. By the same token, the comp figure from 2023 was very strong (+5.1%), albeit inflation-driven. The fact that the UK consumer continued to spend freely in 2023 was largely lost amidst the prevailing “cost-of-living crisis” narrative. Those economists predicting a consumer “bounce back” in 2024 were always going to be disappointed – spending cannot “bounce back” if it didn’t disappear in the first place.
A more positive picture on the volume front. As we predicted, retail sales returned to volume growth in the second half of the year, albeit with an unseemly monthly wobble in November. In contrast to values, volume growth of +0.3% was leveraged against a very soft comp in 2023 (-2.8%) and may seem a bit anemic compared to 10 year (+1.7%) and longer-term averages (+1.9%). But the direction of travel on volumes is positive and should herald an even more robust performance in 2025.
Sector performance
On the surface, non-food (values +1.6%, volumes +1.2%) had a better year than food (+1.1%, -1.6%), although there are still some question marks over the veracity of the grocery figures. According to the ONS figures, foodstore volumes only achieved positive growth in two months last year and were still in negative territory come the end of the year. This contrasts with messaging emanating from the coalface, with the major grocers all suggesting volume growth.
Within non-food, the sectors fell into three broad performance camps: ‘good’, ‘bad’ and ‘mixed’. Those in the ‘good’ camp achieved both value and volume growth, those in the ‘bad’ neither. The ‘mixed’ achieved one or the other, or both but only through deflation.
The best performing categories in 2024 were undoubtedly Sports/Games/Toys (values +15.5%, volumes +14.7%), cosmetics (+10.9%, +8.6%) and textiles (+12.1%, 10.0%). Soberingly, the list of ‘bad’ performing sectors is somewhat longer: furniture (-10.9%, -10.0%), chemists (-7.7%, -12.1%), HH Goods Stores (-4.5%, -3.2%), jewellery (-2.4%, -4.6%) and, most disappointingly of all in the context of the high street, clothing (-2.4%, -4.6%).
The remaining other sectors fell into the more nuanced ‘mixed’ camp. Some achieved stellar spend growth, but were very deflationary, reflecting the fact that sales were ‘bought’ through promotions/discounting. These included PCs & telecomms (+30.7%, +42.2%), music & video (+17.4%, +20.6%) and, to a slightly lesser degree, garden centres (+3.2%, +5.1%). Other ‘mixed’ performance sectors only achieved low growth overall – these included footwear (+0.5%, +0.0%) and DIY (+1.6%, +1.7%).
For more detail, please refer to the accompanying Dashboard.
Online – growth?
An interesting year for the online market. The ‘headline’ figures are thus: online penetration for 2024 as a whole was 27.2%, a +50bps increase from 2023 (26.7%). With every passing year, many of the wild predictions made during the dark days of COVID look increasingly ridiculous. Online penetration hit a high water mark of 30.7% in 2021. Many predicted it would kick on from there when the pandemic subsided. On the contrary – it is unlikely to hit 30%+ again for a decade at the earliest.
The backstory behind the headline numbers is more interesting than the figures themselves. Online demand fluctuates significantly over the course of the year, more often than not, in response to weather patterns. An alternate take on online is that penetration started last year higher (27.5%) than it ended it (27.0%). Not the ‘beginning of the end’ nor start of a long-term decline, but online is on anything on a consistent upwards growth trajectory, as it was previously and as many still perceive it to be. Online growth is as uneven and erratic as demand is generally in all retail channels.
Some perspective
Erratic is the operative word. Retail sales were generally OK in 2024, no better, no worse. The return to volume growth positive, but the overly-rapid decline in inflation depressed overall spending growth And the brief flirtations with deflation towards the end of the year raising a few red flags. And some decidedly wobbly months in April, June and November underlining the ongoing fragility of consumer demand.
Erratic. Our expectations for 2025, in a single word. Our tentative forecast for this year is of value growth of +2.0% to 2.5%, with volume growth in broadly the same range (but slightly lower than values, assuming moderate inflation). Some economists may point to improving confidence and wage growth outstripping inflation as guarantees of an improving consumer outlook. Experience would suggest a less smooth ride, starting with a unfeasibly bumper month in January as the ONS data fudges come home to roost.
A retail sales on another rollercoaster in 2025. Hold on tight.