The Retail Note | Retail sales: the land of make believe
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This week’s Retail Note focuses on the January retail sales figures from the ONS, which were positive, but not for the reasons given.
Key Messages
- Decent retail sales performance in Jan
- YoY retail sales values +2.6%, volumes +1.2%
- Implied inflation of 1.4% lower than headline CPI (3.0%)
- Strong recovery in grocery (vals +2.9%, vols +0.4%)
- Grocery volume growth largely elusive since 2021
- Carpets, sports/toys/games, jewellers standout categories
- Clothing remains very tough (vals -0.5%, vols -2.2%)
- Clothing volumes stuck in reverse since 2023
- Reported MoM volume increase of +1.7% nonsensical…
- But considerably better than economists’ consensus of +0.3%
- Actual data shows that spend was down -26.4% in Jan vs Dec
- Online significantly ‘underperforms’ wider retail spend
- Online penetration declines by -120bps to 25.7%
- Lowest monthly penetration rate since COVID
- Retail sales vols(+0.9%) significantly outstrip GDP (+0.1%) in Q4 2024.
Lies, damn lies and statistics. And the ONS monthly retail sales figures living in their own parallel universe of untruth. January’s figures were fairly strong – but absolutely not in the way that they were reported.
The reality
The most meaningful year-on-year figures did not even get a mention in the ONS commentary. And they were decent. YoY retail sales values (exc fuel) grew by +2.6%, while YoY volumes were up +1.2%. Implied inflation was therefore +1.4%. In essence, we bought more, spent more and inflation was at a healthy, manageable level. All good.
A recovery in the grocery market was one of the key factors behind this. Supermarket sales values grew by +2.9% and more significantly, volumes were also up by +0.4%. This marked the first month of positive volume growth since 2021 (with the exception of one month, August 2024). The ONS finally falling into line with what the major grocers (e.g. Tesco, Sainsbury’s) have been saying for several months now. Implied grocery inflation of 2.5% was slightly lower than the headline CPI rate of 3.0% announced earlier in the week.
Albeit with the usual variations between individual product categories, non-food demand was also decent. Non-food sales values grew by +2.3% YoY, with volumes up +1.8% (and therefore, implied inflation of 0.5%). Again, all good.
The best performing categories in January were an unlikely bunch. A select few achieved value and volume growth and remained in inflationary territory. These included carpets (values +26.4%, volumes +23.6%), sports/games/toys (+15.9%, +14.4%), jewellery (+10.8%, +8.0%) and garden centres (+7.4%, +6.7%).
At the other end of the performance spectrum, it was an extremely tough month for textiles (-19.2%, -17.7%), chemists (-14.1%, -17.0%), footwear (-13.5%, -13.0%) and DIY (-3.7%, -3.7%). With all the talk of rising inflation, a surprising number of non-food categories were deflationary in January, including PC & Telecomms (-10.6%), electrical goods (-2.4%), textiles (-1.5%), footwear (-0.5%) and music & video (-0.2%). Essentially, demand in these product categories was driven by retailers slashing prices.
Two categories to pinpoint – clothing and cosmetics. Both had a very weak month. In the case of clothing (-0.5%, -2.2%) this marked the continuation of a long trend. Values have now been in negative territory for nine of the last 12 months, while volumes have been stuck in reverse since 2023. With cosmetics (-7.0%, -8.0%), this is a sharp turnaround after a long period of outperformance (average monthly value and volume growth of +10.5% and +8.2% respectively in 2024).
For more detail, please refer to the accompanying Dashboard.
The parallel universe
None of the above is mentioned in the ONS narrative, so none of it has been picked up by the media nor economist community. As ever, an unfathomable obsession with month-on-month performance, the figures of which go beyond being meaningless to being absolutely risible.
According to the ONS: “Retail sales volumes (quantity bought) are estimated to have risen by 1.7% in January 2025. This follows a fall of 0.6% in December 2024 (revised down from a fall of 0.3% in our last bulletin). Food store sales volumes grew strongly in January 2025, following falls in recent months. More broadly, sales volumes fell by 0.6% in the three months to January 2025, compared with the three months to October 2024, but rose by 1.4%, compared with the three months to January 2024.”
So: we spent +1.7% more in a miserable January than we did at Christmas. Really? And we ate more too. Really? And Christmas was even worse than the ONS first reported. But actually when we’re talking about December we’re excluding Christmas, as that doesn’t count as consumer demand. Really?
All this really does is underline the folly of the ONS’ process of seasonal and calendar adjustment and more damagingly, how the messaging emanating from this can distort underlying reality. The raw data buried deep in the Retail Sales Pounds Data files tell a vastly different, but far more reflective story. Non-seasonally adjusted retail sales values were down -26.4% in January, while volumes were down -26.6%. A decline of -26.6% versus reported growth of +1.7%? And huge volume growth in December of +38.6% reported as a decline of -0.6%? Really?
I rest my case as to futility of month-on-month reporting of retail sales
Online decline
This extends to the online figures too. For what they are worth, online sales fell MoM by -1.7% in January. With all retail sales growing MoM by +2.6%, online penetration declined by a full -120bps from 26.9% in December to 25.7% in January.
The picture wasn’t radically different on a more meaningful YoY comparison. Online sales grew +0.8% YoY, significantly lower than underlying YoY retail sales growth of +2.6%. So online definitely lost significant “market share”, whichever way you look at it. The penetration rate of 25.7% was the lowest since COVID struck in March 2020.
But as explored in the last Retail Note, this is the new reality for the online market. It is no longer a story of guaranteed, straight-line growth. As with all retail spend, it is highly volatile, with significant monthly – and seasonal especially – variations. Some months it will grow, others it will recede. On an annualised basis it is largely flatlining at 26-27% - the irony is that the monthly figures are anything but flat.
Some perspective
Even if the focus is misguided and the numbers misrepresented, the tone of the ONS retail sales release was positive and this has fed through to the economist community and the media. Of course, we welcome positivity in retail and sentiment is very important. It’s just a shame it’s based more on false information than fact.
Of course, it’s always dangerous to read too much into one month’s figures, even with a discerning and critical lens. All the more so when that month is January, the quietest in the retail calendar, accounting for less than 7% of annual spend. This January was decent, but it doesn’t tell the full story as to the state of underlying consumer demand.
Rather than spurious MoM growth comparisons, perhaps the most positive news story for retail came in the shape of other economic data released recently. We now know that UK GDP grew by a measly +0.1% in Q4 2024. This gives context to already-released retail sales figures relating to the same period that were largely dismissed as being bad. Q4 retail sales values grew by +1.1%. Ah yes, but that includes inflation. OK then, Q4 retail sales volumes grew by +0.9%. So, ‘real’ retail growth was nine times that of GDP.
So, retail outperforming the wider economy. Again. As it always seems to, but is seldom given credit for.