Retail: dates not data
COVID-19 Market Update – 21/05/2021
10 minutes to read
Introduction
This is the 41st of a series of weekly notes analysing the state of the UK retail market in the light of the COVID-19 pandemic. This note focusses on two key themes:
- Making some sense of the ONS retail sales figures for April
- Dates (or timeframes) more important than data
Please do not hesitate to contact myself or any of my retail colleagues if you require any further information.
Key Messages
- Retail sales figures confirm consumer bounce back
- But data itself is heavily distorted by weak comp base
- Retail sales values grow +37.9% y-o-y
- Highest monthly growth on record
- But against a comp of -18.2%
- Non-food sales +122.4% (vs -53.2%)
- Food sales +3.1% (vs +6.7%)
- Most non-food sales categories in triple digit growth
- Clothing +206.5% (vs -69.1%)
- Nebulous to say spend “higher than pre-pandemic”
- Online sales decline m-o-m by -5.6%
- Online penetration declines by 470bps to 30%
- Dangerous to read too much into one month’s data
- Far too early to call a retail recovery
- 2021 Retail Roadmap comprises tailwinds and pinchpoints
- Only in a position to gauge recovery post Xmas.
1. Making some sense of the ONS retail sales figures for April
Boris Johnson has repeatedly stressed that “data not dates” will determine the roadmap out of lockdown for the UK as a nation. With both the retail and hospitality sectors now freed from the shackles of lockdown (albeit with strict social-distancing, trade-reducing compromises), I would venture that the roadmap to recovery of both sectors is best assessed according to “dates not data”. If not “dates” per se, then definitely timeframes.
We all know the adage of “lies, damn lies and statistics”. In terms of COVID and beyond, this perhaps rings truer than ever. Such has been the scale of disruption that many traditional datafeeds have seen wild, if not incalculable, fluctuations. A seemingly watertight metric could be interpreted in a host of different ways and a conclusion drawn at either end of totally contradictory spectrum. This applies to any number of datafeeds, but is especially true of key retail barometers such as footfall and retail sales.
Take recent footfall data by way of example. According to Springboard, footfall in shopping centres last week was up +245%. Or down -2.8%. Take your pick as to whether year-on-year trends or weekly ones are the best barometer. The “bigger picture” reality is clearly somewhere between the two.
Surely two-year comparisons iron out all these inconsistencies? Springboard’s 2021 vs 2019 comparison of -29% is probably a much fairer reflection of where we are, but “pre-COVID” comparisons generally may well be nebulous. The key factor to understand is the basis of comparison. In the case of footfall numbers, what was the lead-in to Week 19 in April 2019 like, when did Bank Holidays fall that year, how was the weather etc etc. Any “pre-COVID” comparison needs context that is all too often lacking.
Footfall figures are relatively straightforward compared to ONS retail sales. April’s release was always going to be one for the purists rather than the headline writers. April last year marked the absolute nadir for the retail market, with retail sales experiencing their worst ever decline by an absolute country mile. This comp base was always going to massively skew the numbers making it difficult to accurately gauge the uplift achieved since lockdown on “non-essential” retail was lifted from 12 April.
What follow are the biggest growth figures we are ever likely to see: retail sales values (exc fuel) grew y-o-y in April by +37.9%, with volumes up by +37.7%. The respective numbers inc fuel were higher still at +43.4% and +42.4%. Needless to say, these eclipse all figures since records began, the previous monthly high being +10.0% in May 1989.
Of course, these need to be put into the context of desperately soft comps last year. All retail growth of +37.9% was against a record decline of -18.2% in 2020. And the main driver behind this was non-food. While foodstores stayed open, non-food sales fell off a cliff last year in the wake of the first lockdown. Y-o-y non-food growth of +122.4% was leveraged off a decline of -53.2% last year.
Predictably huge growth figures across all non-food categories (2020 comps in brackets): clothing +206.5% (-69.1%), household goods +154.9% (-50.6%), furniture +412.5% (-78.0%), carpets +302.0% (-65.9%), electricals +69.3% (-23.1%), DIY +104.3% (-30.8%), garden centres +102.9% (-41.6%), cosmetics +68.2% (-44.2%), jewellery +284.4% (-75.1%). Make of these figures what you will.
Food growth of +3.1% seemingly pales in comparison to these figures, but is still significant in the context of a much more demanding comp (+6.7% in April 2020). This represents a strong performance, with the opening of outdoor hospitality from 12 April only having a minimal impact on supermarket sales to date. But sales will be under greater pressure going forward, with the indoor hospitality sector again operational from 17 May.
Most economists and media channels inevitably fell into the trap of majoring on the month-on-month figures, which showed retail sales values (exc fuel) up +9.1% and volumes (exc fuel) up +9.0%. More modest numbers, but are they any more credible than the y-o-y ones? Not really. Both prove what has always been blindingly obvious: when shops are open, people spend. It really is as simple as that.
Re. my earlier wariness of “pre-COVID” comparisons, the ONS’ attempts to make sense of monthly retail sales figures are one-dimensional at best. Monthly retail sales are compared to Feb 2020, the last full month before the pandemic set in and lockdown measures came into effect. For what they are worth (in my opinion, very little) retail sales values (exc fuel) were up +12.2% on Feb 2020, with volumes up +13.0%.
The issue I have with this is February 2020 is an arbitrary and meaningless baseline that does not take into account the huge seasonality of retail spend. In any given year, February is likely to be the slowest month for retail sales, so we would ordinarily expect any other month to be higher than this. The fact that we spent more in April 2021 than we did in February 2020 is not really a barometer of anything.
But it obviously does make for “back to pre-pandemic levels” headlines. But these are as misleading as they are premature (if not to say dangerous), in that they do not factor in the huge “lost ground” in retail in the intervening 14 months. They imply an immediate sense of recovery rather than a long-term rebuilding process. Economists may think that people are spending as much/more than they did before and normality has therefore returned – the retail industry thinks very differently.
The lifting of lockdown has inevitably taken a lot of the heat out of the online numbers. All online sales declined by -5.6% m-o-m in April, with online grocery down -11.4% and non-food down -9.8%. Overall online penetration declined by 470bps to 30.0%, probably heading towards a figure of ca. 25-26% as physical retail becomes fully operational.
The beginning of the end for online? Of course not, but hopefully the end of a lot of the nonsensical narrative we’ve heard about online over the past year. Online actually grew +31.9% y-o-y in April 2021 and this growth is arguably more “real” than any of the supposedly spectacular growth it achieved during the pandemic. It is organic, achieved on a more level surface.
Some very clear messages on online. For the first time since the pandemic struck, non-store operators i.e. pure-plays such as Amazon etc “outperformed” the overall online market (+0.3% m-o-m vs -5.6%). The obvious conclusion: when stores were closed, consumers still bought from their trusted multi-channel retailers via their online arm. Now that that trusted retailer’s stores are open again, that spend is going back to the stores. Or in all likelihood, via both the stores and online platform of that trusted retailer. People shop brands, not channels (stop me if you’ve heard that one before…).
Physical stores reopen, store sales increase significantly. And online sales increase. The overall retail economy grows. That is the nature of retailing, forget the online vs physical debate. And be wary of any online penetration statistics generally.
Plenty of big numbers, a generally positive message and direction of travel, but for now dates are more important than data…
2. Dates (or timeframes) more important than data
A marathon not a sprint. The UK consumer is back and willing to spend. Of course, this is good news for the beleaguered retail sector, but it will take considerable time for the wounds of the past year+ to heal. One month’s retail sales figures do not herald an instant recovery in occupier markets by any means.
The rest of the year will be crucial. And there are a number of key dates and periods between now and the end of the year – some positive drivers, others major roadblocks. Selected ones are as follows:
- 11 June - 11 July: Euro 2021
In ‘normal’ times, this would surely be much more hyped than it has been this time around, when it has flown under the radar somewhat. It is something of an urban/media myth that major sports events have a massively positive effect on retail sales, but they definitely can boost parts of the hospitality sector (pubs especially). If the weather also plays ball…
- 24 June: Quarterly Rent Day
The next major test for the retail sector. Many “non-essential” retailers and hospitality operators have withheld rent payments since March 2020, but now they are free from lockdown restrictions, the assumption is that they will resume rent re-payment from June. But will they all? Some may argue that just because they are up and running again, 2-3 months of cashflow is still not enough and June is too soon.
- 30 June: End of Business Rate Holiday
The can has only been kicked down the road so far and business rates kick back in after June, albeit in a staggered way. A further cost millstone for the retail sector where reform is so badly needed but, to date, is sadly not forthcoming.
- 30 June: Moratorium on Forfeiture Ends
Possible detonation of the ticking time bomb that is rental arrears. Clearly, still so much that needs to be resolved between landlords and tenants. To write off, to actively pursue or to seek compromise solutions (e.g. staggered repayments, lease re-gears), questions that make Hamlet’s dilemmas seem no-brainers. But some degree of pain and sector fall-out seems inevitable.
- 23 July – 8 August: Tokyo Olympics
Less influential on retail sales and hospitality than the media would have us believe, possibly more a distraction than a positive driver.
- Early Sep – Back to School Period
Lacking the hook of an event such as Halloween, the Back to School period is underrated in the retail calendar. It is usually one of the three biggest spend periods behind Christmas/Black Friday and Easter. September (unlike February) is usually one of the strongest retail sales months in the year.
- 29 Sep: Quarterly Rent Day
The level to which quarterly rent days are a pinchpoint will hopefully recede as time elapses, but realistically, many rental arrears will still be unresolved.
- 26 Nov: Black Friday
Whether Black Friday is a boon for or bane of the retail sector is a moot point (I sit firmly in the latter camp), but it will undoubtedly have added significance this year. The conundrum is always to what extent retailers chase sales at the expense of margin and brand equity. The retail climate between now and November will ultimately set many of these parameters.
- 25 Dec: Christmas Day (and Quarterly Rent Day)
Unlike last year, a Christmas period hopefully uninhibited by tiered restrictions and lockdowns. Christmas Day itself falls on a Saturday, which traditionally makes for a favourable run-in, with a full week’s trading ahead of the day itself.
Is it too soon to be thinking about Christmas? Not if you are a retailer, most of whom will have already ordered in much of their Christmas stock. And notionally, we will probably only be in a position to call a recovery in retail markets post Christmas 2021, once this roadmap has been negotiated.
Realistically, we are looking at a timeframe of several months – many of the data points along the way will be mere distractions. More than ever, retailing is about a bigger picture upon which data can only shine a limited light.