The Retail Note | Retail sales: recovery from the June abyss
5 minutes to read
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This week’s Retail Note analyses the official retail sales figures for July from the ONS – although an improvement on the dire figures for June, they still don’t make for great reading.
Key Messages
• The MoM view far better than ‘the bigger picture’
• Retail sales values up +0.7% MoM
• Retail sales volumes up +0.5% MoM
• Flattered by a weak comp in June
• YoY values and volumes up +2.2% and +1.4% respectively
• Vol growth remains curiously elusive in grocery (-0.6%)
• Vol growth in non-food (+1.8%) far less positive than it appears
• Achieved through heavy discounting
• Non-food worryingly deflationary (-0.3%)
• Good month for textiles, cosmetics, music & video, off-licences
• Bad month for furniture, jewellery, electricals, clothing
• Strong month for online (+3.6% YoY, +2.5% MoM)
• Online penetration increases +40bps to 27.8%
• Consumer demand remains uncertain and erratic.
‘Shops boosted by Euros and summer sales in July’ reads the curiously triumphant morning headline on the BBC website. ‘Shops had a marginally better month than a terrible June thanks largely to an improvement in the weather, but online actually fared much better than shops themselves and the summer sales were a worrying sign of weak underlying consumer demand’ would be my slightly less poetic take on last month’s retail sales figures from the ONS.
The headlines…
The ONS release and media interpretation of the July figures was always going to be misleadingly positive. June’s figures were so bad, July’s could not conceivably be worse. Such are the limitations of month-on-month comparisons so favoured by economists, but largely meaningless to the trained retail eye. MoM retail sales values increased by +0.7% in July, while volumes rose by +0.5%. The comparable for the latter figures was a volume decline of -0.9% in June (revised up from a -1.2% fall as originally reported).
So, far so meaningless. Year-on-year retail sales values (exc fuel) grew by a more healthy +2.2%. More positive still (on the surface at least) YoY retail sales volumes returned to growth of +1.4% after an ugly decline of -0.8% in June. If putting a positive spin on this, this was the best monthly volume performance since early 2022. But I personally wouldn’t major too much on that.
Performance by sub-sector
As ever, the devil is in the detail. Contrary to the Euros/Summer of Sport boost narrative, the grocers did not have the great time of it that you would ordinarily expect. Food sales values grew by just +1.7%, while volumes remained defiantly in negative territory (-0.6%). At least the implied level of food inflation of 2.3% was broadly consistent with other ONS releases.
If food toiled, it would follow that any boost was more keenly felt in non-food, where sales values and volumes were up +1.5% and +1.8% respectively. What should be a positive is actually a major alarm bell – non-food was deflationary (-0.3%). The implication is not that retailers are lowering prices in a measured way in response to easing cost pressures, they are resorting to heavy discounting in a bout of blind panic in the face of weak consumer demand.
This is borne out in the non-food sub-sector breakdowns. The highest growth sector by far was PCs and telecoms, with volumes up a huge +61.0%. But values grew by just +44.5%, implying hefty deflation of -16.5%. PC retailers sold a lot of kit, but barely made any money for their troubles. Other deflationary non-food sectors included electricals (-4.0%), carpets (-2.4%), garden centres (-1.0%), DIY (-0.6%) and sports & toys (-0.2%). Worst performing category by far was furniture (values -16.9%, volumes -16.8%, implied deflation -0.1%). Furniture retailers effectively slashed prices, but even that didn’t stimulate any demand.
Jewellers barely fared any better (values -10.3%, volumes -11.8%), but the biggest concern of all remains clothing (values -3.7%, volumes -5.2%). Clothing sales have gone backwards every month YTD, with average monthly value and volume declines of -3.6% and -6.7% respectively. The prospect of an Indian Summer would rub salt into the wounds of fashion retailers just as they roll-out Autumn/Winter ranges.
On a more positive note, some sectors did achieve the holy trinity of value/volume growth, plus (low) inflation. Cosmetics retained its status as the most consistent performing category (values +14.9%, volumes +13.2%) and alcohol specialists (i.e. off licences) did see the boost that the Euros were expected to deliver generally (+5.8%, +2.4%). But the star performing categories came from the unlikely sources of textiles (+33.6%, +26.7%) and music & video (+10.1%, +6.3%). The Euros may not have sparked widespread demand across the retail sector, but they did prompt a stampede towards curtains, CDs and DVDs…
Online had a strong month in July, with values rising +3.6% YoY and +2.5% MoM. Exceeding all retail sales growth on both counts (+2.2% and +0.7%), it follows that online penetration increased by +40bps to 27.8%. No doubt this was a result of the latest Amazon Prime Day (July 16/17), a fact that seems to have passed the ONS by.
None the wiser
A better month than June, but still no clear direction of travel. And plenty of ongoing concerns to keep retail CEOs awake at night.
The figures for July were undoubtedly flattered by a weak comp in June, plus an improvement in the weather. Where that leaves August is anyone’s guess. We’ve seen further improvement in the weather in the month to date, but will July’s more demanding comp see another dip? The perpetual limitation of taking a month-on-month view.
A more holistic view raises more questions that answers and points to uncertain consumer demand at best. Retail sales value growth is decelerating as you’d expect with easing inflation. But the corresponding revival in volumes has not materialized in any meaningful or consistent way. Seven months into the year, volume growth remains curiously elusive in grocery, despite the two market leaders (Tesco and Sainsbury’s) both maintaining they are firmly in volume growth territory. In non-food, volume growth is proving even more volatile, but where positive, has been achieved through artificial, margin-sapping means (i.e. heavy discounting).
September is always more of an acid test. It is one of the busiest months in the highly seasonal retail calendar in its own right, but is also the gateway to the so-called ‘Golden Quarter’ that includes Christmas.
Until then, I hope everyone is enjoying their new curtains.