UK Retail Sales – what downturn?
ONS retail sales for September and Q3, our predictions for Christmas, Q4 and 2018 as a whole, ongoing stellar performance from ASOS, a weather-induced profit warning from Superdry and a profit upgrade from Shoe Zone.
4 minutes to read
- Excellent figures from ASOS. The online fashion pure-play increased its full year pre-tax profit by 28% to £102m and reported its third consecutive year of sales growth in excess of 20%. In the year to 31 Aug, group revenue climbed by 26% to £2.4 billion while retail sales experienced an uplift of 26%. This included a 23% rise in UK retail sales and a 27% increase in the company’s international markets. During the period, the number of active customers rose by 19% while average basket value edged up by 1%. ASOS succeeds where others a failing because of its grasp and execution of retail fundamentals (focus, understanding itself, its brand and its customers and having the right product) rather than the fact it is an online pure-play.
- In contrast, one of the other ‘darlings’ of the sector Superdry issued a profit warning for its full year performance, announcing that it expects profits to be £10m lower. The fashion retailer has cited the prolonged period of unusually hot weather and additional foreign exchange costs as the main driving factors. The business has acknowledged an over-reliance on “heavier weight product”, such as sweats and jackets, which account for around 45% of its annual sales and thus make it more vulnerable to unseasonal weather in Autumn/Winter.
- Shoe Zone expects its full-year pre-tax profit to be ahead of market expectations following a strong performance for its second half. The footwear retailer said it had traded well in the period ended 29 Sep and for the full-year period it expected year-on-year revenue growth of 1.8% to £161m. The business opened 16 stores in total throughout the fiscal year, bringing its total store network to 492.
Stephen Springham, Head of Retail Research:
Normal service has resumed. The ONS releases a more-than-decent set of retail sales figures, the media gleefully miss-report them to support their ongoing anti-retail narrative.
The hard figures are these: retail sales values grew by 4,2% in September. Stripping out inflation, retail sales volumes grew by 3.2%. Yes, a marginal deceleration on the exceptional growth we saw in August (values +4.8%, volumes +3.5%), but still robust numbers, significantly stronger than the equivalent September figures from the British Retail Consortium (+0.7% overall, -0.2% on a like-for-like basis) had us believe.
Somehow, the media have again conspired to interpret these numbers as a sign of further malaise. Most have majored on the lazy headline of “UK retail sales in biggest drop since March”.
Growth of +4.2% could hardly be described as a “drop”, the media again making the most basic schoolboy error of focussing on the month-on-month trend, rather than the far more meaningful year-on-year one. Ironically, lower wage growth figures of +3.1% released earlier in the week were heralded a triumph.
With the September numbers also come the full Q3 figures. And the picture here is clearly that the UK consumer is continuing to spend. Q3 retail sales values were up by 4.7%, and volumes were up by 3.6%.
There were some variances by retail sub-sector (e.g. DIY had a very strong quarter (+12.1%), while growth in clothing was far more anaemic (+0.8%)), but there is nothing unduly alarming in any of the numbers to suggest a consumer slowdown.
These figures clearly fly in the face of the distress we are seeing generally (but not universally) in the retail sector. The issues in retail run much deeper than the vagaries of consumer spend, deeper even than the recent headwinds of higher input costs, business rate revaluations and increases in the National and Living Wage.
The challenges are longer-term structural failings and are largely legacy-based: oversupply, overexpansion, rent inflation, under-investment (on the part of both retailers and landlords), miss-management of underperforming stores, financial over-gearing and general complacency in “the good times”, to name but a few.
To (wrongly) assume that the UK consumer is simply not spending trivialises the real root causes of where the UK retail market is to-day and the immense challenges that it faces.
We’re close enough to the year-end for me to make my first tentative Christmas predictions and outturn figures for 2018 as a whole (more on the former in the coming weeks).
I would forecast that Q4 retail sales values will grow by 3.5% - 4.0% and volumes by 2.0% – 2.5%. Taking December in isolation, I believe value growth will be in the range of 3.0% – 3.5% and volumes 1.5% - 2.0%.
Given that Black Friday itself falls late this year (30th Nov) and the nonsensical ‘Black Friday Week-End’ will spill over into December, retail sales could conceivably exceed the £50 billiion mark in the final month of the year. For 2018 as a whole, we are probably looking at retail sales value growth of ca. 4.7% and volume growth of ca. 2.8%.
“Real growth in retail sales (2.8%) double that of GDP (1.4%) in 2018.” “Record December retail sales of £50 billion+.” But two headlines you probably won’t ever read in the mainstream media. Sadly.