UK retail sales: a big wobble
This week’s Retail Note focuses on the official retail sales figures for July from the ONS, which weren’t good by any stretch.
5 minutes to read
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Key Messages
- Very weak retail sales performance in July
- Driven as much by poor weather as macro-economic pressures
- Retail sales values -1.1% m-o-m in July, volumes -1.4%
- Previous month v strong and artificially boosted by Bank Holiday
- Retail sales values still increase +4.4% y-o-y
- But a setback in y-o-y volumes (-3.4%)
- Implied inflation recedes from 8.7% to 7.8%
- CDs, footwear, specialist foodstores and carpets top performing categories
- Textiles and HH Goods worst performing categories
- Best month for online since pandemic (+4.1% m-o-m, +9.8% y-o-y)
- Boosted by one-off promotions e.g. Amazon Prime Days
- A wobble rather than ‘the beginning of the end’
Nothing lasts forever. The stellar run of retail sales out-performance came to an abrupt end in July. But this was largely weather-induced, rather than a reflection of retail sales finally playing ball with the macro-economy.
The weather was bad. People stayed in. And shopped a bit more online. That’s probably about as much as I would read into today’s retail sales release.
The ‘headline’ numbers
To address the highly-favoured (but largely meaningless) month-on-month figures first, retail sales values (exc fuel) were down -1.1% in July. Retail sales volumes (exc fuel) were down -1.4% m-o-m. The latter figure was far worse than economist consensus forecasts of -0.6%. Having massively undercooked their forecasts on the downside for most of this year, in July they massively overcooked it on the upside. One day they might get it right, but I’m not holding my breath.
Of course, the ONS pointed the blame mainly at the weather, which few of us would refute. Last month was the 6th wettest July since records began in 1836.
A couple of other factors to throw into the mix. Firstly, June was exceptionally strong (values +1.2%, volumes +0.8%), in part boosted by an additional Bank Holiday (the late Spring Bank Holiday falling into June’s reporting period). The m-o-m comp for July was therefore (artificially) demanding. Secondly, the seasonality of retailing suggests that July is always a weaker month than June, so a m-o-m decline is nothing out of the ordinary.
The y-o-y numbers
What of the much more meaningful year-on-year (y-o-y) comparisons? Equally grim, if I’m honest but we still have no evidence of consumer collapse as such. Y-o-y retail sales values (exc fuel) grew by +4.4%. Probably the single most important figure in the whole release, this effectively means that the market grew by +4.4% in a wider economy that is stagnating.
But, of course, this growth was largely inflationary. And +4.4% was the lowest rate of monthly y-o-y growth since January. More disappointing were the y-o-y volume growth figures (-3.4% exc. fuel). This reverses the direction of travel of the previous three months, where we were starting to flirt with a return to positive volume growth. Not as bad as the ca. -6% monthly declines we saw from April 2022 onwards, but a disappointing (but hopefully temporary) setback nonetheless.
A few crumbs of comfort in the inflationary implications. Implied inflation (exc fuel) from the retail sales figures was 7.8% in July, down from 8.7% in June. Much as it craved, falling inflation provides limited solace against weak retail sales figures.
Performance by sub-sector
Some spectacularly weird and wonderful variances in the performance of the various retail sub-sectors and further evidence of the impact that the weather had. By far the best-performing product category in July was music & video recordings (values +32.4%, volumes +33.6%). Floorcoverings (+13.9%, +5.4%) and books, newspapers & periodicals (+13.4%, +6.5%) also had an uncharacteristically good month.
The weather was bad, so we stayed in read books, listened to CDs and watched DVDs, only venturing out for bit of light relief to buy a carpet.
Foodstores had a much weaker month than we have seen for some time, with values growing +5.3%, but volumes down -5.8%. Defying economic logic, more expensive specialist foodstores continued to firmly buck this trend (values +23.8%. volumes +9.8%).
Non-food retail sales values grew by just +2.9% in July, with volumes down -2.7% and implied inflation of 5.6%. Within this, a few sub-sectors continue to enjoy both value and volume growth – as well as those outliers already mentioned, footwear (+17.5%, +11.7%) warrants mention as one of the best-performing product categories over a sustained time period.
At the opposite end of the performance spectrum, a bad month for a number of other non-food sectors, experiencing both value and volume declines. These included household goods stores (-0.1%, -4.7%), garden centres (-1.0%, -6.8%), DIY (-1.8%, -6.2%), chemists (-11.9%, -20.9%), electricals (-1.1%, -4.0%), jewellery (-4.0%, -7.8%) and textiles (-28.6%, -32.5%).
Carpets’ gain was clearly curtains’ loss.
Online sales bounce back
Online had its strongest month since the dark days of Covid. Of course, the weather would have been heavily influential in this, as would the Amazon Prime event which ran from 11-12 July. All online retail sales increased +4.1% m-o-m and +9.8% y-o-y, with online grocery +0.8% m-o-m and +4.8% y-o-y. Online grocery penetration stood at 8.8%, still considerably lower than the peaks of ca. 15% seen during the pandemic.
Online growth in non-food (+2.0% m-o-m and +5.3% y-o-y) masked considerable divergence between sectors. Department stores (-4.0%) and household goods stores (-0.1%) saw m-o-m declines, while non-store retailers i.e. online pure-players saw strong growth of +6.6% (+14.7% y-o-y). The latter undoubtedly reflecting a temporary demand spike around Amazon Prime Days.
Where now for retail sales?
Good or bad, it is always dangerous to read too much into one month’s retail sales figures. July’s figures are likely to prove more a wobble than the start of a sustained downward trend.
Even if August’s figures disappoint, we still would not have enough evidence to call a consumer collapse. Due to the seasonality of retailing, the figures from September onwards become increasingly crucial.
Enjoy your new carpets.