December – decent rather than disastrous
This week’s Retail Note analyses the official Christmas retail sales data from the ONS and the FY outturn figures for 2021.
9 minutes to read
Key Messages
- Dec retail sales muted rather than disastrous
- Y-o-y retail sales values up +2.1%
- But y-o-y retail sales volumes down -3.0%
- Implied rate of inflation of ca. 5%
- Food sales +2.9%, above expectation
- Non-food +5.4%, below expectation
- Clothing +13.4%, footwear +17.4%, jewellery +26.3%
- Online sales down -8.3% y-o-y and -1.8% m-o-m in Dec
- Consumers shopped early due to supply chain fears
- Q4 retail sales values up +3.0%
- In Q4, food sales +1.5%, non-food +9.4%
- FY2021 retail sales value growth of +6.2%
- Highest annual rate of growth since 1990
- In 2021, food sales +1.4%, non-food sales +11.8%
- All categories (exc chemists) in growth territory in 2021
- Decent Xmas overall, providing solid platform into 2022.
Mildly disappointing rather than downright disastrous, but plenty to fan the flames of discontent around rising inflation and an impending consumer squeeze. The official retail sales release from the ONS in a single sentence.
To elaborate somewhat: December’s retail sales figures were in positive growth territory, but to a lower degree than expected. Some evidence of consumers doing their Christmas shopping earlier, rather than leaving everything to the last minute (which is actually no bad thing for the retail sector). In numerical terms, non-food outstripped food, but food actually outperformed expectations and non-food maybe underperformed. In non-food, ‘high street’ categories such as fashion, jewellery etc had a far better time than bulky categories such as electricals and household goods. And a large disconnect between retail sales values and retail sales volumes indicating significant inflation (again, not necessarily the unadultered horror story that this is depicted to be in the media).
Of course, with the December ONS release come the Q4 and full-year figures, which provide a more holistic picture. As a whole, the final quarter of the year was decent, even if the current direction of travel is less certain. And the outturn figures for 2021 as a whole far exceeded even the most optimistic of forecasts any of us were making this time last year.
"The outturn figures for 2021 as a whole far exceeded even the most optimistic of forecasts any of us were making this time last year.”"
Dec 2021…
December’s figures in isolation were disappointing rather than desperate. Most media channels seem to be focusing on month-on-month retail sales volumes, I suspect largely because this is the most negative headline number in the release (-3.7%, or -3.6% if fuel is excluded). I also suspect few have any handle on what retail sales volumes actually mean, even fewer why month-on-month comparisons are usually highly spurious.
More meaningful headline figures paint a slightly more positive, although still slightly disappointing, picture. The go-to headline figure of year-on-year retail sales values (exc fuel) showed positive growth of +2.1%, lower than we may have otherwise hoped (including fuel the figure as even higher at +5.7%). Those desperate for a really positive spin could point to pre-pandemic comparisons – retail sales values were supposedly +7.7% higher and volumes up +3.6% on pre-pandemic levels. But all that really indicates is that we spent more in a peak Christmas month than we did in a completely innocuous month in the retail calendar (February 2020). No one should read anything into that.
Values up, despite lower volumes. In effect, we spent more in December, but actually bought less stuff. QED the figures provide evidence of rising inflation. On a headline basis, the figures including fuel suggest inflationary levels of around 6.6%, excluding fuel around 5.1%.
In terms of individual product categories, the usual mixed bag, with the numbers still highly skewed by a weird and often not-so-wonderful comp base. Food sales were up +2.9% y-o-y, far higher growth than anticipated given the strong comp base (+3.7%), no doubt boosted by a decline in the hospitality sector not captured in this release. Clearly, many consumers opted to stay at home rather than venture out in the run-up to Christmas amidst renewed COVID-19 concerns.
Non-food sales were up +5.4% y-o-y, which was somewhat disappointing given the weak comp base (-3.2%). But there were significant disparities within the non-food subsectors with demand strong in categories such as clothing (+13.4% versus -14.4% in Dec 2020), footwear (+17.4% vs -17.4%), jewellery +26.3% vs -10.5%) and cosmetics (+14.8% vs -8.1%). All sub-sectors we would ordinarily expect to do well over a festive trading period. Less obvious star performers were music/video/DVDs (+69.4% vs +0.8%), carpets (+66.3% vs -39.3%) and garden centres (+14.5% vs -3.5%). Those non-food categories that underperformed were household goods (-2.5% vs +10.4%), furniture (-7.1% vs +4.1%) and electricals (-10.8% vs -5.0%).
Significant and inevitable declines in online, given that December 2020 was encumbered by various tiered systems and lockdowns (lest we could ever forget). Month-on-month and year-on-year declines across virtually every retail sub-sector, with a couple of exceptions. Overall online sales decreased -8.3% y-o-y (-1.8% m-o-m) with non-food down -10.1% (-2.2%). Within this, the decline in online fashion was particularly stark (-14.1% y-o-y, -3.4% m-o-m). Online grocery was down -0.1% y-o-y, but interestingly up +9.1% m-o-m. A strong indicator of the seasonality patterns of a ‘settled’ online grocery market? I believe so. Meanwhile, non-store retail showing a steeper decline that all online (-9.6% vs -8.3%) again providing evidence of multi-channel operators outperforming online pure-players.
Month-on-month comparisons are usually largely irrelevant, but in this instance they do reflect a clear trend – consumers shopped earlier for Christmas than before. In other years, we may have attributed this to the influence of Black Friday, but this is much harder to justify this time around. Consumer demand in November was strong, but so too was October. And evidence of margin erosion that we would normally associate with Black Friday was simply not there – on the contrary, if there is one highly positive message to come out of many of retailers it was strong growth of full-price sales i.e. fewer promotions and less discounting.
Of course, the obvious conclusion is that consumers shopped early in the run-up to Christmas in the face of supply chain fears. In the event, I believe what was supposed to be a massively de-stabilising factor for the retail industry has actually proved a blessing – for once, retailers weren’t over-stocked in the run-up to Christmas and were able to price and (non-) promote accordingly. Less was more and hopefully buying and supply chain lessons will be learnt going forward.
"If there is one highly positive message to come out of many of retailers it was strong growth of full-price sales i.e. fewer promotions and less discounting"
Q4 2021…
Q4 aka ‘The Golden Quarter’. Not one of the marketing world’s finest hours…
The quarterly figures provide a broader and more telling picture of demand over the wider festive period than December’s in isolation. But caveats around weird comps apply equally to the quarterly numbers.
Total retail sales values (exc fuel) in Q4 grew by +3.0% (Knight Frank forecast between +3% and +4%). Food sales grew by +1.5% (KF forecast <+2%), while non-food sales grew by +9.4% (KF forecast >+6%, shamefully undercooked). Online sales declined -8.3% (KF forecast -8%).
It is hard to put this quarterly performance into context. To say that Christmas 2021 was a record trading period where we spent more than we ever did before in history wouldn’t actually be factually incorrect. But these hyperbolic statements have done retail few favours in the past, giving the sector a false sense of health that glosses over far deeper structural failings. Nor are “pre-pandemic” comparisons the watertight measure they purport to be – sure, we spent more last Christmas than we did in Christmas 2019, but that doesn’t mean that things have gone back to normal by a long chalk.
Less mathematical, but probably the best context is growth rates achieved in previous “non-COVID” “Golden Quarters”. +3.0% compares favourably with the +1.8% registered in Q4 2019, but is slightly below the corresponding figures for 2018 and 2017 (+3.9% and +4.1% respectively). On this basis, the fairest assessment of last Christmas was that it was decent rather than bumper. But given the bigger picture and wider backcloth, the retail sector would gladly settle for decent.
"Back to pre-pandemic levels” narrative completely misses the point in retail. It implies a sense of normality that can never exist in a constantly evolving market"
FY 2021…
A finally (cue drumroll) the full-year outturn figures. Total retail sales (exc fuel) grew y-o-y by +6.2% in 2021. I look forward to the groveling apologies from those that ridiculed my projection of +5%...
Last year’s +6.2% is obviously flattered by the 2020 comp (which, despite everything, still saw retail sales grow by +0.5%). Nevertheless it is still the third best annual performance since 1989 and the best since 1990 (+7.3%). But, as I’ve said already, hyperbole is a dangerous thing.
A few highlights in the annual data on the various sub-sectors. Food spend grew +1.4%, a very strong performance given that 2020 saw the best annual performance (+5.1%) since the GFC. Non-food rebounded by +11.8%, but only partially redressing the -12.5% decline registered in 2020. This residual ‘black hole’ is perhaps most apparent in sectors such as clothing (+14.2% vs -25.8%) – despite recent buoyancy in demand, the scars are only slowly healing.
On a more positive note, virtually all non-food sectors achieved positive growth in 2021, the only exception being chemists (-6.0% against unfeasibly strong growth of +42.4% in 2020). For many sub-sectors, this was obviously a rebound against a desperately challenging 2020, but not one sector has continued on a downward spiral. Some have even achieved growth-on-growth – take a bow electricals (2020: +0.9%, 2021: +7.0%), DIY (+14.2%, +13.2%) and garden centres (+4.2%, +21.2%).
“Back to pre-pandemic levels” narrative completely misses the point in retail. It implies a sense of normality that can never exist in a constantly evolving market. Equally, if we assume that retail sales are “back to pre-pandemic levels”, there would be a tendency to not address the structural issues of the high street that predated COVID-19 and still persist to this day.
But if there are two takeaways from the last couple years it is these 1. never underestimate the strength of the consumer. They will continue to spend, whatever economic headwinds may come their way (and retail sales always tend to out-perform the wider economy in times of crisis. 2. retail can only operate at anything like its full potential when it is given free-rein to do so i.e. not subject to restriction nor lockdown. And long may that continue.