Xmas 2021: key staging post on the long road to retail recovery
This week’s Retail Note is a triple header: analysis of the October retail sales figures from the ONS, expectations for Black Friday and our projections for retail sales for the festive period as a whole.
6 minutes to read
Key Messages
- Total retail sales increase +0.9% in Oct
- Decent performance given tough comp (+8.0%)
- Previous months’ figures also revised up
- Food sales +1.0%, non-food +5.4%
- Recovery in clothing (+17.7%) continues
- Online sales decline -8.2% y-o-y, -0.6% m-o-m
- Online penetration at lowest level since March 2020
- KF forecast Xmas (Q4) retail sales growth of +3% to +4%
- Xmas (Q4) food sales growth <+2%, non-food >+6%
- Xmas (Q4) online sales likely to decline >-8%
Surprisingly upbeat reporting of the ONS retail sales figures for October in the media, borne more of data misrepresentation than anything else. The figures themselves are solid rather than outstanding, but as ever, context is everything.
Growth against a tough comp
Retail sales values (exc fuel) grew year-on-year by +0.9% in October, slightly lower than the steer we had from the BRC last week (+1.3%). The far less meaningful month-on-month figure was more positive (+2.1%) and brought to an end a run of five successive monthly declines. Hence the misplaced media jubilation. Whilst I’m loath to pour cold water on any optimism directed at the retail sector, the happy-clappy ONS narrative about retail sales being higher than pre-pandemic levels (values by +9.6%, volumes (+7.0%) is actually very tenuous – given the huge seasonality of retailing, February 2020 is not a meaningful basis of comparison.
These gripes aside, these were generally solid figures. The wider context for any retail sales analysis is understanding what was happening in the comparable period last year. In October 2020, we were out of lockdown, but the second one was looming. Retail sales were correspondingly strong (+8.0%). So, growth of +0.9% leveraged off a tough comp represents a decent performance.
Two other ‘headlines’ of note, one positive, one slightly less so. On the less positive side, retail sales volumes were down -1.9% y-o-y in October, implying underlying shop price inflation of around +2.8%. But on the positive side, the ONS actually retrospectively revised up a number of the previous months’ data. August (+1.8% y-o-y) and September (+0.7%) were actually significantly better than originally reported. With the benefit of this hindsight, a lot of accompanying doom and gloom narrative was highly premature, if not to say just wrong.
Sector by sector and online
As ever, massive polarities in performance by individual retail categories, skewed in no small measure by a definitely weird and sometimes wonderful comp base in October 2020 (figures in brackets). Food sales grew y-o-y +1.0% (+3.6%), outperformed by non-food +5.4% (+2.1%).
Predictably, the non-food categories that performed best last month were those that performed badly a year ago. Chief amongst these were clothing (+17.7% vs -13.9%), footwear (+11.9% vs -12.5%), PCs /telecoms (+29.5% vs -40.1%), cosmetics (+8.9% vs -2.1%) and jewellery (+22.9% vs -0.9%). But the inverse also applied to a number of home-based categories, who enjoyed something of a mini-boom this time last year. DIY sales were down by -7.7% (+35.9%), furniture by -5.7% (+1.8%) and carpets by -10.8% (+31.1%). Star performing categories were definitely garden centres/pet stores (+16.2% vs +24.3%) and electricals (+1.4% vs +14.4%), which both achieved annual growth-on-growth.
Echoing the figures and narrative from the BRC, online sales receded significantly on every count. All online sales declined -8.2% year-on-year and -0.6% month-on-month and online penetration of retail sales hit its lowest level since the pandemic struck in March 2020 (27.3% on a non-seasonally adjusted basis).
Online grocery slipped by -1.8% on both a y-o-y and m-o-m basis, although this trend may well (temporarily) reverse in December. The key point being that the online grocery market is exceptionally seasonal, with demand peaks and troughs over the course of a year. Online sales from non-food multi-channel retailers declined -7.0% y-o-y, with interesting performance divergences between department stores (-17.4%) and clothing retailers (+0.6%). Non-store operators (i.e. online pure-plays) saw sales slump -11.0% y-o-y and -0.8% m-o-m. Clearly against a very challenging comp base, but there is still a very clear message that in online, multi-channel operators are definitely outperforming their pure-play counterparts.
Black Friday
“An event with no redeeming features whatsoever”. “Black Friday = Red Herring”. “The Deafening Sound of White Noise”. “Everyday is Black Friday”. Just an assortment of the headlines I’ve written on Black Friday in prior years. Plenty of unprintable ones never quite made the cut, for some reason.
To keep things brief, Black Friday has gone from being a sham to something of a non-event. Ironically, the sheer barrage of Black Friday marketing and advertising that will come our way over the coming week(s) (and is, in fact, already in full swing) will prove rather than disprove my point. In the space of a few years, Black Friday has gone from a single-day of frenzied discounting to an ever-longer piece of vacuous promotion and marketing.
Black Friday (in its original form) was highly damaging for retailers. Offset against a brief period of higher sales volumes, retailers were actually perilously slashing gross margin, if the so-called “bargains” were genuine. If they weren’t genuine (i.e. a phony price cut or just a normal promotion) they were effectively duping customers and devaluing their own brand to boot. The ultimate catch-22 situation.
As with the retail sales numbers, any Black Friday figures will be all over the place this year. Again, understanding the comp base will be key and November 2020 was a desperate time for many parts of the retail sector, representing nearly a full month of lockdown for “non-essential” operators. The retail sales figures reflect this. The headline retail sales figure for November 2020 was respectable (+4.4%), but masked massive disparities between food (+6.2% as hospitality was shut) and non-food -8.4%. And, of course, it was a key moment in the sun for non-store retailers (+42.5%).
So, for November 2021, we can expect to see stellar growth in non-food, sluggish/slightly negative growth in food and a sharp decline in online. The media will inevitably read a lot into these numbers, but they are likely to more a triumph of mathematics than a ringing endorsement of the supposed success of Black Friday.
Xmas Predictions
For the festive period as a whole, read October and what I predict for November – numbers all over the place that are almost impossible to attach too much meaning to. For the number obsessives, I would tentatively predict that total retail sales values for Christmas (Q4) will be somewhere in the range of 3-4%. Food sales growth will be low (<2%) but any growth at all will be “good growth” in the context of a tough comp base. Non-food sales growth should exceed +6%, but non-store retail sales will decline by more than -8%, possibly even in low double digits.
For once (actually, for most of the time), the health of the retail sector is about so much more than the numbers. An obsession with numbers detracts from the bigger picture. And the bigger picture is that retailers are in an infinitely better position going into this Christmas than last, when Lockdown V2 and the subsequent Tier system rocked the retail industry to the core in what would be its peak season. Consumers are willing to spend and will do so over Christmas.
The challenges of retail will not be directly washed away, but Christmas 2021 is an important staging post on the slow road to recovery. And it will be a decent one, whatever the doommongers may say.