Retail sales growth of +3.5% does not make 2019 “the worst year for retail on record”

Official Christmas and FY 2019 retail sales figures from the ONS and the latest Xmas reporting from retailers themselves.  
Written By:
Stephen Springham, Knight Frank
8 minutes to read

Stephen Springham, Head of Retail Research:

After the overly-sensationalistic retail sales figures from the British Retail Consortium (BRC) last week, we now have the official figures from the ONS. What the BRC’s lacked in transparency, the ONS’ make up for in detail. Sadly, at first glance, much of this detail smacks of fudge, under the auspices of “seasonal adjustment”.

The headline numbers are thus: retail sales values (exc fuel) in December grew by +1.1%, while retail sales volumes (i.e. ‘real’ growth, net of inflation) increased by +0.7%. For Q4 as a whole, retail sales values were up year-on-year by +1.8% and volumes were ahead by +1.3%. Taken at face value, deeply underwhelming rather than disastrous numbers.

But there are a million more questions than answers in the actual numbers. All the headline numbers are “seasonally adjusted”, meaning the ONS has gone to pains to smooth out any potential calendar effects and other seasonal distorting factors. And that includes the horror that is Black Friday.

Black Friday was always going to be difficult to read last year as it fell later (29 Nov) than previous years. This led to a number of data quirks. For the ONS, it meant that Black Friday was incorporated into the figures for November in 2018, but into the figures for December last year. So, taken at face value, November 2019 figures should show a trough, followed by a peak in December 2019. In “seasonally adjusting” the numbers, the ONS has in fact artificially created a trough, followed by another trough.

As well as questions, the “seasonally adjusted” version of the figures throw out a number of very curious anomalies. Month-on-month and quarter-on-quarter comparisons (as opposed to year-on-year) are spurious at the best of times. The ONS figures suggest there was a month-on-month decline in December (-0.8% in both volume and value) and similarly a decline in Q4 on Q3 (-1.0% in value, -1.1%). No doubt these are the figures that our media friends will major on.

But to spell out in laymans terms what those numbers imply: we spent more in November (excluding Black Friday) than we did in December (which included Black Friday, Christmas and Boxing Day). Really? And we spent more in July/August/September than we did over the whole festive period. Really?? And October was the peak of the festive trading period, not November or December. Really???

What the ONS have inadvertently done in their attempts to “seasonally adjust” the figures is to virtually expunge Black Friday from the numbers altogether. They didn’t inflate November’s figures to compensate, but they did “seasonally adjust” December’s figures down. While the prospect of Black Friday disappearing without trace is admittedly a very pleasant one, we must at least acknowledge the sales spike it inevitably brings, not just the troughs either side.

Online had a pretty bad time of it over Christmas too, according to the “seasonally adjusted” figures. Non-store retailing sales declined by -3.2% quarter-on-quarter in Q4. And there was me thinking that online sales peaked around Black Friday.

What of the “non-seasonally adjusted” numbers i.e. what the figures actually said before the ONS smoothed them out. An entirely different picture, although you have to dig deep into the numbers to find them.

Squirrelled away on pages 56 and 36 respectively of the 101 page release: non-seasonally adjusted retail sales values grew by +6.0% year-on-year in December, while volumes grew by +3.2%. It would be remiss to look at these figures in isolation from those for November (values -4.1%, volumes -0.8%), but taking a measured view across the two months probably leads to a slightly more positive view than the “seasonally adjusted” headline numbers.

Of course, the ONS December release also includes the full 2019 outturn figures. For 2019 as a whole, retail sales values (exc fuel) grew year-on-year by +3.5% (KF forecast +3.5%). A far cry from the equivalent figure released by the BRC last week (-0.1%). Retail sales volumes in 2019 (exc fuel) grew by +3.1% (KF forecast +3.0%).

Was 2019 “the worst year on record for retail”, as the BRC reported (and the media lapped up)? Growth of +3.5% was indeed lower than the two preceding years (2017: +4.5%, 2018: +4.2%), but is exactly in line with 20 year averages. And certainly better than the meagre growth of just +0.6% registered in 2009 and the +1.0% witnessed in both 2005 and 2015.

2019 “the worst year for UK retail”? Possibly/probably the most challenging in terms of structural change, but certainly not the worst for consumer demand. Period.

Away from the retail sales figures, the trading updates from retailers themselves have been coming thick and fast. Acknowledging the very strong caveats I made last week (retailer Xmas trading statements need to be taken with a heavy pinch of salt), The Good, The Bad and The Mixed:

The Good

Arguably the standout performance of any operator, boohoo posted a +44% increase in revenue to £473.7m in the four months to 31 Dec. Sales in the US and Europe grew by 57% and UK sales were ahead by +42%. FY sales growth guidance was upgraded from +33%-38% to +40%-42%.

A pure-play online fashion operator the top performer, but still a stellar performance from online-abstainer Primark (endorsing our mantra that consumers shop brands, not channels). On a constant currency basis, group sales at Primark grew by +4.5% in the 16 weeks to 4 Jan. Most of this growth reflected new space, rather than like-for-like improvement. UK sales were up +4%, but there was “a marginal decline” in like-for-like performance.

Healthfood operator Holland & Barrett saw total sales grow +4.8% for the three months to 31 Dec, driven by a like-for-like improvement of +3.3% and online sales growth of +22%. A similar story at The Fragrance Shop, which posted a +1.2% uplift in sales for the seven weeks to 4 Jan. Online sales grew +17% (with a +40% surge in click & collect orders), while like-for-like sales in stores were in positive territory.

Strong figures from Fortnum & Mason. For the five weeks to 29 Dec, the business reported a +15% increase in sales, driven by a combination of like-for-like store (+13%) and online growth (+22%, to represent 39% of the retailer’s mix). Premium food operator Booths registered an increase in sales of +3.5% in the three weeks to 5 Jan. Like-for-like sales were ahead +2.7%, driven by a strong performance from own-brand products (presumably also providing a boost to gross margins).

Out-of-town specialist Hobbycraft saw sales rise +8.9% in the five weeks to 24 Dec. Like-for-likes were up by a very creditable +5.3%, while online sales grew +19.5%. Garden centre operator Dobbies registered soaring sales growth of +44% in the nine weeks to 29 Dec, with like-for-likes ahead by +6%.

Online pureplay Shop Direct saw total revenue (including financial services) rise +3.2% year-on-year in the seven weeks to 27 Dec, boosted by a 22% rise in new credit customers during the period. The business (for the benefit of older readers, an amalgam of the two former mail order behemoths Littlewoods and Great Universal Stores (GUS)) has since rebranded to its most famous current brand, The Very Group.

The Bad

Contrasting performance at another former mail order stalwart that has morphed into an online pure-play. N Brown issued a profit warning in the wake of tough trading conditions “in a highly promotional market”. The group (which includes the sub-brands Jacamo, Simply B, Ambrose Wilson and JD Williams) saw product revenue decline -4% in the 18 weeks to 4 Jan, while the financial services arm saw revenues drop by -4.6%.

Ongoing poor performance at young fashion operator Quiz. Group revenues declined by -9.3% in the seven weeks to 4 Jan, with sales at stores and concessions (many of which are in Debenhams) down -7% and online sales down -14.8%, the latter partly a result of its decision to cut ties with 3rd party online supplier Zalando (a relationship which it said was unprofitable).

Disappointing figures from Moss Bros. The menswear specialist posted a -3.2% decline in like-for-like sales for the 24 weeks to 11 Jan, with overall sales down -3%. Online sales slipped by -0.4%, while hire sales (which no account for less than 8% of total revenue) slumped by -17.7% on a like-for-like basis.

The Mixed

Strong headline figures at Halfords belied a mixed performance at its constituent parts. Group sales were up by a healthy +4.6% (+1.3% like-for-like) in the 14 weeks to 3 Jan. The business also reassured on earlier FY profit guidance (£50m-£55m). Autocentre sales surged +31.2% (+4.6% like-for-like) over the period, but this was offset by sluggish growth of just +0.6% at the retail business. Performance at the latter was held back by like-for-like decline of -2.7% in motoring sales, although cycling sales grew +5.9% like-for-like.

DFS has maintained profit guidance despite a fall in sales. For the 26 weeks to 29 Dec, the upholstery specialist saw gross sales decline by -6% in the face of “a particularly challenging consumer environment, particularly in August and September”. Big ticket sectors such as furniture are some of the few retail sub-sectors that have tangibly seen consumer demand negatively affected by political and economic unrest.

Theo Paphitis Retail Group saw steady performance at Ryman and Robert Dyas, but trading was been softer at Boux Avenue. Over the Christmas period (the six weeks to 24 Dec), group like for likes slipped -1.3%. There was positive performance at Robert Dyas, Ryman was flat, but Boux Avenue was down.