Online in freefall
This week’s Retail Note analyses the official retail sales figures from the ONS for August – a distinct downturn on July, but generally a slowdown rather than meltdown. But the online picture is worsening rather than improving.
5 minutes to read
Key Messages
- August retail sales figures disappointing.
- Y-o-y retail sales values (exc fuel) +3.7%
- But stripping out inflation, volumes (exc fuel) -5.0%
- M-o-m retail sales values down -1.4%, volumes down -1.6%
- Demand still v strong in cosmetics, carpets, footwear and garden centres
- Chemists, DIY, electricals and furniture far more challenged
- Online sales still in freefall
- Y-o-y online sales values down -9.5%, implied volumes down ca. -20%
- Online grocery down -0.2% m-o-m, -12.0% y-o-y
- Online non-food down -2.4% m-o-m, -9.7% y-o-y
- Online penetration down -60bps to 25.7%
- If trend continues, online may revert to pre-COVID levels in months
- Tragic events of the past fortnight will impact negatively on Sep’s figures
- Real acid test of consumer demand from Oct when rising energy costs bite.
"All lies and jest, Still a man hears what he wants to hear, And disregards the rest"
The retail sales figures for August understandably received limited coverage given the enormity of other events over the past week. But what coverage they did receive was alarmist in the extreme, many sections of the media single-handedly blaming weak retail sales performance for the Pound slumping to a 37-year low against the Dollar. The retail sales figures weren’t great, but they certainly weren’t that extreme.
The m-o-m picture
“I’m not expecting miracles from the August numbers, as and when they are released. The excessively hot weather this month is unlikely to have had a positive impact on consumer demand. Plus, the ridiculous fixation with m-o-m trends will almost always give rise to a ‘good month – bad month’ perpetual yo-yo.” Prophetic words from last month’s Retail Note write-up.
On a month-on-month basis, August was always going to struggle to emulate the surprisingly strong performance of July. M-o-m values declined by -1.7% (-1.4%), with m-o-m volumes (i.e. stripping out inflation) down -1.6% (inc and exc fuel). As ever, far too much weight put on monthly figures in the economist community.
A slightly different picture from the more meaningful year-on-year figures, with retail sales values up +5.4% (+3.7% exc fuel). Total market growth in positive territory, but this can’t disguise the fact that inflation was largely the driving force – y-o-y volumes were down -5.4% (-5.0% exc fuel).
Exceptions to every economist rule
Consumer squeeze = cost-of-living crisis = 1. Spend slowdown across all retail categories. = 2. No volume / “real” growth at all. = 3. Discretionary spend categories worst hit. = 4. Demand much more inelastic in essential goods. = 5. Online somehow immune. There is detail in the latest retail sales figures to challenge each and every one of these assumptions. If not to debunk them outright, then at least to prove there are exceptions to each and every rule.
Most of the retail categories reported year-on-year spend growth, whether supported by inflation or not. Some categories were even comfortably in double digits, including cosmetics (+30.5%), carpets (+21.2%), textiles (+19.1%), footwear (+15.7%) and garden centres / petshops (+12.9%). These figures, in isolation, do not scream slowdown.
And there is still “real” growth in a number of these categories. Excluding inflation, volume growth was still significant in cosmetics (+22.4%), textiles (+10.7%), carpets (+11.8%), footwear (+8.4%), PCs & telecoms (+7.5%). In simple terms, consumers are still buying more of all of these goods, despite price increases.
A flight of spend from all discretionary categories? Not if carpets are anything to go by (values +21.2%, volumes +11.8%, despite implied inflation of +9.4%). Inelastic demand in essential sectors? The contrast between chemists (values -21.9%, volumes -24.8%) and their supposedly much more discretionary sister category cosmetics (values +30.5%, volumes +22.4%) could hardly be more stark.
A far more nuanced picture than the headline numbers would have us believe, but these exceptions do not gloss over some very weak numbers. Grocery sales were up +6.0% overall, but volumes were down -5.0%. Non-food sales were up +2.2% overall, but volumes were down -5.2%. Demand in some sectors was exceptionally weak e.g. electricals (-11.8% values, -12.3% volumes), DIY (-12.3%, -22.3%), furniture (-3.0%, -13.8%) and jewellery (-5.0% and -11.0%). For only the second month since March 2021, clothing volumes were also in negative territory, albeit only marginally (-0.9%, despite value growth of +7.5%).
Consumers are definitely cutting back in some areas, but re-prioritizing spend into others – and not necessarily where we’d expect.
Online decline – no signs of bottoming out
Online is curiously assumed to be totally immune to wider market pressures, the narrative for so long being of unbridled market growth. The truth is anything but that simple and the latest retail sales figures were another online horror show.
With virtually no exceptions, all online metrics were heavily in negative territory on both a year-on-year and month-on-month basis. All online sales were down y-o-y by -9.5% and by -3.6% month-on-month. Online grocery was down -12.0% y-o-y, -0.2% m-o-m, while non-food online was down -9.7% y-o-y and -2.4% m-o-m. Non-store retailing (i.e. online pureplays) was down -8.6% y-o-y and -5.3% m-o-m.
Note that all these online figures relate to values and therefore include inflation. Total retail sales values were up y-o-y +3.7%, comparable online sales were down y-o-y -9.5%. To appreciate how weak the performance of online was, broadly take another 10% of growth off these headline numbers to account for inflation. Effectively, online saw a ca. -20% decline in volume / “real” growth last month.
The online penetration figures produced by the ONS have long appeared suspect. Online supposedly accounted for 25.7% of all retail sales (8.9% in grocery, 21.3% in non-food) in August. Back in January, this figure stood at 25.3%, yet six consecutive months of double-digit / high single-digit decline have seen the figure curiously remain at broadly the same level.
If the rate of decline continues over the next few months, the inconceivable may actually become a reality – online penetration is lower than pre-pandemic levels. Something that nobody predicted and very few will accept.
Where now?
The ‘where now?’ question is sadly even more nuanced than usual. The ‘bad month / good month’ yo-yo pattern is likely to have been severely disrupted by the tragic events of the last fortnight. The economic reality of an unforeseen Bank Holiday and the somber national mood generally are likely to have curtailed consumer demand considerably, over and above any impact of the consumer squeeze. September’s figures are likely to make for sobering reading, before the real acid test comes from October when the energy price hikes really kick in.
Slowdown, rather than meltdown.