Retail sales: flat = uneven?
This week’s Retail Note analyses the official retail sales figures for February from the ONS, which point to uneven consumer demand.
6 minutes to read
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Key Messages
- A very mixed picture in Feb, with misleading ‘headlines’
- Retail sales volumes flat m-o-m, values down -0.1%
- Volumes much better than economist consensus forecasts (-0.4%)
- But y-o-y performance decelerating
- Feb y-o-y sales values were up +3.1%, volumes -0.5%
- Implied shop price inflation declines to 3.6%
- ONS heralds strong performance of clothing + dept stores
- But y-o-y clothing sales values/volumes down -1.9%/-6.8%
- Good month for cosmetics, sports goods, textiles and garden centres
- Bad month for charity shops, chemists, furniture and electricals
- Online y-o-y val growth of +2.2% (+2.1% m-o-m)
- Online penetration increases by +60bps to 25.7%.
- March will prove a better barometer as to strength of consumer demand.
Flat is the new uneven. On the surface, retail sales growth plateaued in February. This has given rise to any number of interpretations, some more positive than others. February marked a slowdown on a suspiciously strong January, but at the same time, exceeded economist forecasts. Some are even looking at retail as being the trailblazer for wider economic recovery, which is strange as they didn’t make the same association in 2023 when retail sales were actually stronger than they are at present.
As ever, the devil is in the detail – and the picture couldn’t be more mixed.
The headlines…
The new, revamped ONS release is much lighter on detail than before and curiously dispenses with the most meaningful figures of all – the year-on-year comps, which are buried deep in the accompanying datasheets. Instead, the emphasis is completely on the economist-friendly (but largely meaningless) month-on-month figures.
The supposed ‘headlines’ were that m-o-m retail sales volumes were flat in February, following an increase +3.6% in January (revised up from the previously released figure of +3.4%). Cue an overly- positive response in the economic community, where the consensus had been of a m-o-m volume decline of -0.4%. As Capital Economics observed: “shoppers largely shrugged off the unusually wet weather, provided further evidence that a rebound in retail activity, and perhaps the wider economic recovery is underway. And as inflation continues to fall, rising real household incomes should support retail activity throughout 2024”.
According to the ONS, clothing and department stores outperformed foodstores, with m-o-m volume declines at the latter cancelling out gains at the former. Sales volumes in food and household goods stores declined by -0.3% m-o-m and -1.0% m-o-m respectively. However, that was offset by the +1.6% m-o-m and +1.7% m-o-m respective gains in department and clothing stores.
Consumers defying the inclement weather, retail underpinning a wider economic recovery, with clothing and department stores leading the charge. The key takeaways from the ‘headlines’ – which sadly does not stand up to much scrutiny if you delve even slightly into the underlying data.
…vs the Reality
Even some of the other m-o-m metrics set alarm bells ringing. Sales values actually fell m-o-m by -0.1% in February, according to the ONS. Whatever volumes are doing, a decline in actual spending is hardly a cause for celebration.
The far more meaningful year-on-year comps provide a much more meaningful (if also more nuanced) perspective. Y-o-y retail sales values (exc fuel) grew by +3.1% in February. This was the third lowest rate of monthly growth since June 2022, but obviously reflects lowering levels of inflation. Retail sales volumes (exc fuel) were down y-o-y by -0.5%, giving an implied rate of shop price inflation of 3.6%.
Of course, the reduction in inflation is rightly being trumpeted and widely welcomed. But it shouldn’t overshadow all other metrics. While not disastrous, a decelerating rate of value growth and volumes remaining disappointingly in negative territory (the +0.5% growth in January proving a false dawn) remain real concerns for the retail sector.
The purists may actually resort to the rawest-of-the-raw data in the shape of the Pounds Data worksheet. On a ‘non-seasonally adjusted basis’ retail sales values were actually up +2.8% on January (vs -0.1% reported) and volumes were up +2.0% (vs 0.0% reported). A truer picture of demand, before any adjustment on the part of the ONS.
With spurious pre-pandemic comparisons having dominated the narrative for so long, it is ironic none have been made this time, yet February 2024 marks the 4th year anniversary of the last “normal” pre-COVID month. Retail sales values (exc fuel) were 20% ahead of February 2020, but volumes remain slightly below (-0.6%). In other words, spend is healthily above pre-pandemic levels, but the number of items bought is still marginally lower – laying bare the inflationary environment that has prevailed in the intervening period.
Performance by sub-sector
An equally inconsistent picture in the performance of the individual product categories – and one that flies firmly in the face of the m-o-m ‘headlines’.
Supposedly a drag on overall performance, grocery actually outperformed non-food. Grocery sales values grew +4.4% y-o-y, but volumes were down by a disappointing -0.9%. Implied grocery inflation of 5.3% is moving in the right direction, but is not kick-starting an uptick in demand that most economists would expect.
Non-food value growth was far more pedestrian (+1.7% y-o-y) and volume growth remains elusive (-0.5%). As ever, this belies major disparities in the various non-food sub-categories. The best-performing category in value terms was PCs & Telecomms (+37.4%), but the fact that this was highly deflationary (-10.7%) implies demand was artificially driven by discounting.
More encouraging were the performances of cosmetics (values +11.6%, volumes +7.7%), sports, games and toys (+4.0%, +0.8%), textiles (+3.4%, +2.0%) and garden centres (+2.4%, +2.7%). At the other end of the performance spectrum, charity shops (-36.4%, -37.7%) and chemists (-12.9%, -21.0%) both had terrible months, sub-sectors that you’d expect to thrive in a time of a cost-of-living crisis. More rationally, a number of ‘big ticket’ discretionary categories also toiled, such as furniture (-6.2%, -5.6%), electricals (-4.3%, -1.2%) and carpets (-3.3%, -5.2%).
What of clothing, the supposed ‘trailblazer’ according to the headline release? Fashion sales values were actually down -1.9% y-o-y in February and volumes were down -6.8%. That these figures were marginally better than an absolutely dire January (values -2.7%, volumes -7.8%) hardly smacks of a rebound or a recovery. Whatever the ‘headlines’ may say, clothing demand remains weak.
The wet weather in February definitely played into the hands of online. Online spending values grew by +2.2% y-o-y (+2.1% m-o-m). Although lower than all retail sales growth (+3.1%), online somehow saw an increase in penetration from 25.1% to 25.7%.
For a more detailed and visual analysis, please refer to our accompanying Retail Sales dashboard.
Some perspective
In effect, we learnt very little from the latest ONS release. The nature of the data and the ongoing preoccupation with largely meaningless m-o-m comparisons dictate a perpetual ‘good month, bad month’ yo-yo. October bad, November good, December bad, January (exceptionally) good, February bad.
And it’s always dangerous to read too much into one month’s figures in isolation. Especially when that month is February, which is traditionally the second quietest month in the retail calendar after January (accounting for less than 7% of annual retail spend).
The figures for March and, to a slightly lesser degree, April, will be more of an acid test as to the strength of underlying consumer demand. Easter is the second busiest event in the retail calendar behind Christmas, but can heavily distort the figures depending on when it falls. Numbers that can be difficult to decipher at the best of times suddenly take on a whole new dimension.
Whatever the ‘headlines’ may say, February was not flat. Some elements were good, some bad. Flat implies stable or static. Retail sales are in fact highly volatile. And anything but flat. Consumer demand remains uneven, to think otherwise would be premature.