The Retail Note | Retail sales: solid as rock?
This week’s Retail Note focuses on the February retail sales figures from the ONS, which, while not perfect, still remain one of the brighter spots in the UK economy.
6 minutes to read
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Key Messages
- Sound retail sales performance again in Feb
- YoY retail sales values +3.0%, volumes +2.2%
- Implied inflation of 0.8% lower than headline CPI (2.8%)
- Despite stalling performance in grocery
- Grocery sales (vals +1.1%, vols -1.4%)
- Non-food sales ostensibly stronger (vals +4.0%, vols +4.4%)
- But deflation a concern in many non-food categories
- Jewellers, carpets, sports/toys/games standout categories
- Clothing remains very sluggish (vals +0.2%, vols flat)
- Online rallies during month (+3.9% YoY)
- Online penetration increases by +70bps to 26.5%
- Late Easter (20 Apr) will play havoc with Mar/Apr retail sales figures
- Underlying consumer demand remains decent.
You’re welcome, Ms Reeves. Retail sales have once again defied wider economic gloom. Despite minimal support and limited positive intervention in either the Autumn Budget and subsequent Spring Statement (our thoughts on that here), retail has again delivered the goods.
Value + volume growth + manageable inflation
February’s figures achieved the Holy Trinity. Year-on-year retail sales values (exc fuel) were up by +3.0%. Better still, YoY volumes were up +2.2%. Implied inflation was therefore +0.8%. Consumers spending freely, volume growth accelerating, inflation at a comfortable level and easily within manageable limits. Cushty.
Of course, the ONS persists in majoring on the more meaningless month-on-month figures in its narrative. For what they are worth, retail sales volumes rose MoM by +1.0% in February, following a rise of +1.4% in January (revised down from a rise of +1.7% previously reported). On this basis, volumes are now at their highest level since July 2022. Non-food stores rose by +3.1% MoM, putting volumes at their highest level since March 2022. But on a less positive note, foodstore volumes fell by -2.0% MoM following a strong January (+4.8%).
Again, the veracity of these MoM ‘estimates’ on the part of the ONS doesn’t stand up to much scrutiny in the face of the accompanying raw Retail Sales Pounds Data. The non-adjusted figures showed that we actually spent £34.1bn in February, -16.3% less than the £40.7bn we spent in January. Rather than increase MoM by +1.0%, unadjusted retail sales volumes actually declined by -16.5%. But why let the truth and seasonal fluctuations stand in the way of a genuinely good story?
Performance by sector
The performance of grocery was somewhat disappointing, however the cake is cut. Grocery sales values grew YoY by just +1.1%. With grocery inflation running at an implied rate of 2.5%, volumes were down YoY by -1.4%, the uptick and return to positive growth territory reported in January (+0.3%) sadly proving to be a false dawn.
The fact that volume growth in food continues to prove elusive remains a puzzle, especially when refuted by the major supermarket operators. Tesco’s and Sainsbury’s annual results in the coming weeks (10 April and 17 April respectively) will provide a lot more clarity on the state of the grocery market generally.
In contrast, as a collective whole, non-food sales were much stronger. Non-food sales values grew +4.0%, while volumes were ahead +4.4%. The implied rate of deflation of -0.4% takes some of the gloss off this performance, the inference being that growth was partially driven by discounting and retailers slashing prices to entice demand.
The usual variances of performance by non-food sub-sector. Far and away the best performing sub-sector was jewellery (values +25.9%, volumes +21.8%). It would be easy (but lazy) to attribute this uplift to Valentine’s Day, except for the fact that these are YoY figures so both years include Valentine’s Day as a fixed-date event. The fact that floorcoverings (+24.3%, +25.4%) were the second best performing category reinforces this fact – I’m not sure too many people rushed out and bought their loved one a new carpet for Valentine’s Day (or that their relationship endured if they actually did).
Decent headline performance also from music & video (+18.6%, +22.4%), electricals (+8.6%, +10.4%) and DIY (+5.0%, +10.8%), although all three categories remained deflationary to varying degrees. More balanced volume and inflationary growth in categories such as sports & toys (+18.5%, +18.5%) and furniture (+5.5%, +5.4%), the latter something of a recovery after a long period of underperformance.
At the other end of the performance spectrum, textiles had an abysmal month (-34.4%, -32.2%), while footwear (-6.7%, -5.8%), cosmetics (-4.5%, -5.8%) and chemists (-1.6%, -0.8%) also toiled. In the case of footwear and cosmetics (particularly) the comes after a long period of out-performance. Clothing growth remains very sluggish, with growth of +0.2% purely inflationary, with volumes flat.
Something of a rally in online following a soft January. MoM online sales rose by +3.3%. The more meaningful YoY online growth figure stood at +3.9%, higher than overall retail sales growth of +3.0%. Accordingly, online penetration rose +70bps from 25.8% in January to 26.5% in February. Expect monthly fluctuation between 25% - 28% for the foreseeable future, if not indefinitely.
For more detail, please refer to the accompanying Dashboard.
Wider context
YTD retail sales performance has been robust without being outstanding. The UK consumer is in decent shape. Overall spending is holding up, but the blots on the copybook remain declining grocery volumes, deflation in many non-food categories and a soft fashion market.
It is always risky to read too much into one month’s performance, even two. January and February are the two quietest months in the retail calendar, each typically accounting for just 6%-7% of annual retail demand. Easter is the first retail retail staging post of the year and unlike Valentine’s Day, is a movable feast. This year, it falls very late (20 April) compared to last year (31 March). Cue havoc in the ONS trying to reconcile this through seasonal and calendar adjustment.
I would second guess that the figures for March will appear subdued regardless, less because demand was weak, more because of the complexities of seasonality and the timing of Easter. But April should be strong for the same reasons. And as a general point, a late Easter tends to be better for retail sales in that the weather is more likely to be playing ball too (but please don’t hold me to that if Easter proves a wash-out).
Today’s retail sales release comes as part of an economic data deluge, with many of the Q4 2024 figures revised. Overall Q4 GDP growth was unrevised at just +0.1%, business investment was down -1.9% (-3.2% previously) and overall consumer spending was up by a meagre +0.1% (-0.0% previously). Retail sales comfortably above all of these levels.
Retail – a driver of, rather than a passenger in, the UK economy. Surely deserving of more stimulus and support than it is currently being afforded?