The Retail Note - Do the ONS Know it’s Christmas?

Key Messages

• Consumer demand will hold up over Christmas… 
• …whatever may emerge from the Autumn Budget
• £134bn of spend will be made in Q4
• Q4 values up ca. +3.0%, volumes up ca. +1.0% to +1.5%
• £57bn of spend will be made in Dec
• Dec values up ca. +2.5%, volumes up ca. +1.0%
• Neither a bonanza nor a disaster
• ONS release likely to present a contrasting view
• ONS figures likely to suggest strong Nov but weak Oct/Dec either side
• But month-on-month figures are meaningless
• “Seasonal adjustment” obscures the true picture of actual festive trade
• Black Friday = white noise 

£134bn. That’s how much we’ll collectively spend this Christmas, give or take the odd bob. A big, headline number. Of course, that £134bn refers to the ridiculously-titled “Golden Quarter”, basically the October – December period that spans the full run-up to Christmas, Black Friday (sigh), Cyber Monday (really?), Christmas itself and the start of the post Xmas sales.

£57bn. That’s how much we’ll collectively spend in December in isolation. Again, give or take the odd penny. About the same as the annual nominal GDP of a country such as Tunisia, Bolivia or Jordan.

Historically, I’ve always scoffed at retail sales predictions, festive or otherwise, that have led on absolute numbers (i.e. £s). They’ve always seemed a cheap way to grab a headline because the numbers always look big, with little or no wider context. But given how festive reporting has gone over the years (misleading from the ONS, misrepresentation by the media and widespread doom mongering regardless), little or no wider context is perhaps best. Whatever the economic climate and whatever may come out of the Autumn Budget, Christmas will still happen – and people will still spend a lot of money. End of.

Which is why it is not foolhardy to release our Christmas sales predictions ahead of the October retail sales figures next Friday (21 Nov) and the Autumn Budget announcement the following Wednesday (26 Nov). However dramatic the fall-out from the latter may be and the extent to which this may influence consumer demand in the medium- and longer-term, do not expect consumers to simply shut-up-shop for Christmas. But, no doubt, that is the path most media outlets will inevitably go down and I suspect, much of the narrative on this has already been written in advance. Predictable, boring and just plain wrong.

Why no growth figures? 

Given the misrepresentation of the figures (explainer to come), predicting retail sales performance over Christmas has become something of a fool’s errand. So, here goes. I forecast Q4 retail sales values will increase by +3.0%, with volumes up by +1.0% to +1.5%. December sales values will be slightly lower (values +2.5%, volumes +1.0%).

The irony is that making Christmas predictions these days is far less an exercise in understanding what is actually happening on the high street, and far more an endeavor in trying to second-guess the ONS. Any predictions now need to be caveated to the hilt, not because they could be wrong (heaven forbid), but because they may not be consistent with the messaging that the ONS puts out and that is perpetuated in the media.

To be crystal clear, the predictions above exclude fuel (not a retail category) and refer to year-on-year comparisons (as opposed to month-on-month). They take into account annualised seasonal-adjustment (SA) (so a lot of ONS second-guessing). Ideally, we should be looking at non-seasonally adjusted (NSA) figures for the purest possible view, but these figures are buried so deep in the ONS release you need an industrial digger to get anywhere near to them.

Sadly, these numbers will not be reported in the commentary from the ONS release. These will major on the largely meaningless, massively “seasonally-adjusted” month-on-month volume figures, as these supposedly dovetail with other economic data releases, such as GDP. So, expect a depressed October figure, a super-duper November one and a rotten December one. And a hugely predictable narrative that basically reads that October was quiet as everyone was nervous ahead of the Budget and holding out for Black Friday, November buoyant as everyone took advantage of Black Friday “deals” (sigh), but December awful because the Budget pushed consumer demand off a cliff.

It speaks volumes that the likely read on the data outputs is far easier to predict than the numbers themselves.

The folly of month-on-month comparisons 

I say it every month, but at Christmas it is more transparent than ever. The ‘headline’ month-on-month volume figures carry next-to-no weight, basically because they are “seasonally-adjusted” to the point of virtual irrelevance.

By way of explanation, the ONS states: “Seasonally-adjusted estimates are derived by estimating and removing calendar effects (for example, Easter moving between April and May) and seasonal effects (such as increased spending in December because of Christmas) for the non-seasonally adjusted (NSA) estimates.”  Unbelievably, the ONS is basically trying to exclude Christmas from the December retail sales. So, basically give a hypothetical figure for December if Christmas didn’t happen. I say it again, unbelievable.

Ironically, we do have the hard data to highlight the ridiculousness of the reporting. The separate ONS Retail Pounds Data is just that – the raw version of the data, unadulterated, non-doctored and free from any ham-fisted attempts at “seasonal adjustment”.

What does the Retail Pounds Data tell us? Logically, that December is always the busiest month for retail sales. Always has been, always will be, typically accounting for ca. 12% of annual retail spend. The next busiest months? Perhaps surprisingly, always September and June (ca. 9%), then whatever month Easter falls in any given year, be that March or April. All higher than November, despite the joys of Black Friday (sigh).

Last year, retail sales volumes in December were £54.2bn. In November, they were £39.1bn. Month-on-month actual retail sales volumes increased by +39%. After “seasonal adjustment”, the ONS reported that retail sales volumes were down (repeat, down) in December by -0.3%. Cue narrative of Christmas being a disaster, which wasn’t the case.

In essence, the data being engineered to present an alternative reality from the one which actually happened. Sadly, I would expect the same this year, unless there is a miraculous move away from month-on-month reporting.

Black Friday

The timing of the Autumn Budget isn’t ideal for the retail sector in that it falls just two days before the official day of Black Friday itself. The Chancellor’s timing also shows scant regard for the Retail Note, as the one on Fri 28 November will be dedicated to assessing the Budget implications for retail, rather than extolling the “virtues” of Black Friday.

Not that there is anything new to say about Black Friday. A revisit of my Note of last year…

“In case you’re just returning from a trip to outer space, today is Black Friday. A one day retail extravaganza, where shoppers flock to stores and buy loads of bargains. And retailers laugh all the way to bank. 

Your visiting outer space is more likely and plausible than any of the above. Black Friday is anything but a one day event. Retail is now a bit-part player in a bandwagon that every walk of life has mindlessly jumped on. High street footfall is unlikely to spike today as many consumers have wised up to the fact that supposed bargains aren’t bargains at all. And for those retailers that still embrace it, they are either taking a financially crippling hit to gross margin, or conning their customers and risking long term collateral damage to their brand. And for the more self-respecting retailers, it is little more than an exercise in damage-limitation. 

What’s wrong with Black Friday and what, if anything, is different this year? 

What’s wrong with Black Friday? 

The enlightened may already have detected a mild disdain on my part towards Black Friday. Those that may have read my missives on the subject in previous years will have seen the full force. Rather than cut and paste previous efforts, a short summary as to why I see it as one of the most damaging forces to the industry that I represent. 

In essence, it can no longer be just a one day event, because of the huge disruption and commotion this causes, both in-store on the day and in terms of online supply chain bottlenecks. Rather than dispense with it altogether, retailers have just extended it out over a protracted period – an ever longer one. Not just a day, not just a week-end, not just a week, but a whole month. A whole two months even. 

The risk of this is that it loses relevance as the impact is diluted. And any ‘bargains’ are just built into a rolling programme of promotions that would have happened anyway. Effectively, retailers have killed the goose that didn’t lay any golden eggs in the first place. 

But that is not happening quietly. The noise around Black Friday amplifies each year, with retailers shouting louder, the less they have to shout about. And, of course, the noise is deafening from all sides, every marketing department of every B2C business in the land showing their lack of imagination and screaming Black Friday deals at every available opportunity. Big call out here to the mobile network providers, who excel in this area. But their Black Friday ‘deals’ being largely no different from ‘deals’ that they offer at any other time of the year. 

And that circles back to retail. Are ‘bargains’ all they seem? Clearly not, as there is growing evidence to support. Research from Consumer group Which? has reinforced what many of us have long suspected - nine out of 10 Black Friday offers are cheaper or the same price at other times of the year. So, only 10% are true ‘bargains’. But enough to damage the gross margins at the most crucial time of the year for those retailers that do partake in genuine price cuts. 

So, the other 90% of ‘bargains’ are effectively cons. Consumers being lured into buying things under false pretenses. Anecdotal evidence from a couple of retailers (who shall remain nameless) suggest that all they do for Black Friday these days is put up a few gaudy posters in the shop window and also by a rack of items that were on promotion in any case. A practice that is probably widespread across the market. But trying to dupe your customer base is a dangerous game for any retailer to play. 

Three of the very most important things for any retailer, in any sector, in any country in the world – gross margin, brand value and customer trust. All three are at severe risk of compromise through Black Friday. 

Above all else, there is no evidence to suggest that Black Friday drives incremental retail sales growth. All it does is disrupt demand patterns and redistribute spend over a very unpredictable timeframe. 

All in all, a lot of noise and fuss about nothing. 

What’s good about Black Friday? 

Nothing whatsoever. 

What’s the alternative? 

Doing nothing. Too many operators are too far gone to row back and many lack the courage and faith in their brand to do so. 

But there are exceptions to this. To single out just three: M&S, Next and Primark will not embrace Black Friday this year and have only flirted with it very lightly in the past. All three are razor focused on full-price sales, recognized the importance of gross margin stability and back their product and brand to withstand noise in the wider market. 

M&S, Next and Primark will also be amongst the top performing retailers over Christmas and this will become clear as the festive trading statement are released in the New Year. No coincidence that they stood firm in eschewing the folly that is Black Friday.

What’s new this year? 

Not a tremendous amount, essentially more of the same – with the volume cranked up to a Spinal Tap-esque 11.

But two key differentiating factors do stand out this year, one seasonal, one structural. Firstly, Black Friday is late this year, its now-forgotten precursor of US Thanksgiving being on 28 November, the latest day it can ever fall. This is significant in that Black Friday itself will probably fall outside the November reporting period for the ONS retail sales figures when they are published on 20 December and will instead be captured in the December figures. Hope springs eternal that this will prompt the ONS to produce figures that are more reflective of actual Christmas trading patterns, rather than mercilessly downplay December as they have in the past.

Secondly, there is huge contradiction – and much hypocrisy - between the retail sector’s response to the recent Autumn Budget and their embrace of all that is wrong with Black Friday. The juxtaposition of Rachel Reeve’s Budget and Black Friday may seem a curious one to make. As covered in a previous Retail Note, retailers are now faced with a triple whammy of additional costs (increased employer NI contributions, rising minimum wage, revised business rate multipliers) that will weigh heavily on their bottom lines. But any sympathy on this is sorely tested if they willfully inflict the same bottom line pressure on themselves through Black Friday participation. Retailers pleading poverty, but doing nothing to enrich themselves.

Not that anyone will be reading this anyway – everyone is no doubt currently out shopping, being conned or hurting retailers’ gross margins. Enjoy!”

2025 update

Obviously, last year’s note came in the wake of the 2024 Autumn Budget, which was more ‘corporate-unfriendly’, whereas this year’s stands to be more ‘consumer-unfriendly’. Watch this space…

This timing of Black Friday itself this year is a day earlier than last year, so last year’s observations again apply – technically, it may fall outside the ONS reporting figures for November and be captured in the December release instead. But this is effectively a moot point given that it is now stretched out over such an elongated period, rather than concentrated around a single day.

Other than that, enough said? For now, at least…