The Retail Note - Retail sales: a temporary slowdown

Key Messages

• An inevitable deceleration in retail sales in Sep
• YoY retail sales values +3.4%, volumes +0.8%
• MoM volume decline of -0.4%
• Q3 values +3.8%, volumes +1.7%
• Shop price inflation rises from 2.0% to 2.6%
• Still lower than headline CPI (3.5%)
• YoY grocery spend +2.1%, volumes -0.1%
• YoY non-food spend +3.3%, volumes +1.3%
• Strong month for PCs & Telecomms, Cosmetics, Jewellers, Furniture
• Soft demand for Textiles, Chemists, Footwear, Sports
• Unseasonal weather stifled Clothing sales (-0.2%)
• Online sales -0.4% MoM, +6.8% YoY
• Online penetration declines by -10bps to 28.8%
• UK consumer in decent shape ahead of Xmas.

The artificial ‘good month – bad month yo-yo’ continues in retail sales, an inevitable and ultimately misleading by-product of the folly of month-on-month comparisons. On this basis, July was weak, August was strong, so September was inevitably going to appear weak regardless. We’re not going to learn much about the state of the UK consumer and the ramifications for the high street from this misplaced parallel universe.

The more nuanced picture is that retail sales decelerated in September, but still enjoyed fairly decent growth. The slowdown was driven by relatively soft demand for food and a reverse in some non-food categories such as clothing, in part prompted by the weather not playing ball. Online had one of its less seasonal months, but overall inflation remains largely in check.

September – subdued but not catastrophic

Year-on-year retail sales values (exc fuel) were up +3.4% in September, considerably lower than the +4.9% reported in August and shy of the running monthly average YTD (+4.5%). Year-on-year retail sales volumes (exc fuel) were up +0.8%, again lower than both aforementioned comps (+2.9% and +2.5% respectively). Taking a step back, when events in the Middle East kicked off earlier this year, very few would have anticipated that we would still be in positive retail sales volume growth territory six months later. But here we are.

For what they are worth (next to nothing), the estimated ‘headline’ month-on-month figures showed a volume decline of -0.4%, which was worse the economist consensus forecasts of -0.1%. But the prior month saw volume growth upgraded to +0.7%, making economist consensus forecasts even more woefully wrong than they were at the time (-0.2%). They’re clearly struggling with this yo-yo thing.

Implied shop price inflation (exc fuel – operative phrase) increased to 2.6% in September from 2.0% in August. This was the highest level since April (3.1%), but is still materially lower than headline CPI (3.5%). Fuel is obviously a very distorting factor, with figures from the latest ONS retail sales release suggesting that inflation is running around the 29% mark.

Q3 as a whole

The month-on-month yo-yos are partially neutralised by quarterly figures, albeit year-on-year comparisons are far more meaningful than the quarter-on-quarter ones upon which the ONS majors in its narrative. “The quantity of goods bought (volume) in retail sales is estimated to have risen by +0.7% in Quarter 3 (July to Sept) 2026, compared with Quarter 2 (Apr to June) 2026”. Not bad considering Q3 had two down months on the yo-yo cycle, while Q2 had two on the up.

A far more meaningful picture in the year-on-year comps, which showed that retail sales values (exc fuel) were up +3.8% and volumes (exc fuel) were up +1.7% on the same period in 2025. In both cases this marked deceleration on Q2’s YoY figures (+5.3% and +3.0% respectively), but this performance was exceptional and not sustainable. Again, had we been offered this performance six months ago, we’d have gladly taken it.

Performance by sub-sector

Usual variation in monthly performance by sub-sector – mostly more of the same, but with a few changes.

Grocery demand was fairly soft. Food sales grew just +2.1% year-on-year, while volumes dipped by -0.1%. Grocery volumes remain highly erratic, the YTD monthly average of +0.1% masking four months of decline offset by five months of increase, with no discernible pattern nor definitive direction of travel.

Higher headline growth in Non-food (YoY values +3.4%, volumes +1.3%), but a contrasting picture across the various sub-sectors. PCs & Telecoms (values +29.4%, volumes +27.9%, inflationary for once) and Cosmetics (+18.0%, +15.2%) by far the two best performing non-food categories. Strong demand for Charity Shops (+12.3%, +4.7%) a reflection of the ongoing ‘cost of living crisis’? Possibly, but strong demand for highly discretionary categories such as Carpets (+11.7%, +5.9%), Furniture (+11.6%, +10.6%) and Jewellery (+9.7%, +2.0%) suggests otherwise.

At the other end of the performance spectrum, another highly challenging month for Textiles (-16.6%, -17.8%), Footwear (-12.1%, -11.5%), Sports (-6.3%, -6.2%) and Music & Video (-5.6%, -9.7%) and Chemists (-3.7%, -5.4%).

The major change to monthly trends was a sudden slump in Clothing demand (-0.2%, -1.0%), the worst monthly figures since May 2025. A decline of -0.2% stood in sharp contrast to a running monthly average of +6.2% YTD. Unseasonably warm weather in September was blamed for weak demand, and Clothing retailers probably stand united with gardeners in welcoming the more seasonal weather we have seen in recent weeks.

Further evidence of the huge seasonality in online, as explored in our recent Retail Renaissance Paper #1: Death of Online? Paper. Online sales declined -0.4% month-on-month and -0.1% quarter-on-quarter. As overall retail spending grew +0.3% in September, online penetration slipped back by -10bps to 28.8%.

For more detail, please refer to our accompanying Retail Sales Dashboard.

Where do we go from here?

And so here it is, the ridiculously unimaginatively titled Golden Quarter. Or the ‘All Important Golden Quarter’ to give it its full lazy media monicker. Cue the usual frenzy around how good or bad Christmas is going to be (with much more emphasis on the latter), how hard-pressed consumers are, how beleaguered the high street is, how make or break the festive season will prove and flimsy and facile separation of retailers into winners and losers enclosures.

Our predictions for Christmas 2026 will follow in due course. Spoiler alert, they aren’t going to be radically different from previous years. Christmas will happen and consumers will spend vast amounts of money. And there will be plenty of ranting on my part as the sheer folly of month-on-month retail sales comparisons is fully laid bare when the ONS decides to “seasonally adjust” Christmas out of the equation and report Christmas sales, without Christmas. Yes, you read that right.

Whatever you may read in the coming weeks, particularly around the Autumn Budget on the 28^th, the UK consumer is in fairly decent shape. Retail sales values YTD are running around +4.5%, volumes at around +2.4%. Inflation is rising slightly, but is still in check. Even allowing for a slight slowdown in Q4, a FY outturn of values +4.0% and volumes of +2.0% would be exceptional in the circumstances.

Above all, there’s much more to retail than obsessing with monthly yo-yos.

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