The Retail Note - Retail sales: spend baby spend

Key Messages

• No discernible impact on retail sales – as yet
• March YoY retail sales values +4.1%, volumes +1.7%
• Q1 YoY values +5.0%, volumes +3.4%

• YoY grocery spend +2.9%, volumes -0.8%

• YoY non-food spend +2.8%, volumes +1.9%

• Strong month for Jewellers, Books, Garden Centres, Cosmetics

• Soft demand for Chemists, Sports, Textiles, Carpets

• Online sales +2.4% MoM, +10.5% YoY

• Online penetration increased by +50bps to 28.7%

• Contrasting inflationary trends

• Implied food inflation rises to +3.7% from +2.6% in Feb

• Implied non-food inflation of +0.9% below headline CPI (+3.3%)

• Many non-food categories actually deflationary

• Consumer confidence sinks to lowest level since Oct 2023

• An inevitable dip in April not necessarily a precursor to a downturn.

“It can’t last. It won’t last”. The stock response from the economist community when they call retail sales spectacularly wrongly. As they have, once again.

Year-on-year growth in both values and volumes. Quarter-on-quarter growth in both values and volumes. Month-on-month growth in both values and volumes. No matter how you cut the cake, interpret or mis-interpret the data, absolutely no sign as yet of any negative reaction to events in the Middle East. We’re being told of a collapse in consumer confidence, yet not a shred of evidence to suggest that this is impacting on retail sales.

Global unrest, what global unrest?

Starting with the most meaningful metrics, year-on-year retail sales values (exc fuel) grew by +4.1%, with volumes ahead +1.7%. A solid three month stint meant that Q1 year-on-year retail sales values (exc fuel) were up +5.0%, with volumes up +3.4%. Boom.

The far less meaningful (but economist-friendly) metrics are similarly strong. Quarter-on-quarter retail sales values (exc fuel) grew by +2.0% (+2.3% inc fuel) and volumes were ahead by +1.4% (+1.6% inc fuel, the headline figure that the ONS majored on in their narrative). Month-on-month retail sales values were up +1.8%, with volumes up +0.7%. Significant only as economist consensus forecasts had penciled in volume growth of just +0.1% in their aimless pursuit of poring over month-on-month trends in a highly seasonal market. Ye of little faith…

Performance by sub-sector

The headline figures positive on every measure, but a more nuanced picture beneath the surface. And some telling movements on inflation.

Grocery sales grew +2.9% year-on-year, but volumes were down by a disappointing -0.8%, the first month of decline since August 2025. Potentially the shape of things to come for the rest of the year. All non-food sales vales were up +2.8%, with volumes also remaining in positive growth territory (+1.9%).

In terms of headline growth, the standout categories were PCs & Telecomms (values +25.0%, volumes +32.0%), Jewellery (+12.4%, +1.9%), Books (+12.1%, +7.3%), Garden Centres / Pet shops (+11.1%, +7.9%) and Cosmetics (+10.2%, +8.7%). Albeit with a degree of deceleration on previous months, clothing also continued its sustained run of strong performance (+3.7%, +3.0%).

At the other end of the performance spectrum, demand was again soft for Chemists (-18.3%, -20.4%), Music & Video (-14.6%, -17.6%), Sports & Toys (-10.1%, -8.9%), Textiles (-9.3, -9.0%) and Carpets (-8.3%, -9.8%).

I usually gloss over Automotive Fuel in my retail sales analysis on the basis that 1. It isn’t strictly a retail category. 2. What comes out of a petrol pump is not reflective of what is happening on the high street. 3. It is a highly volatile category and this can skew the numbers and muddy the waters. But given global events, Fuel has obviously risen up the charts of relevance. The ONS used strong Fuel sales almost as an apology for the strong headline numbers, but year-on-year sales were in fact only up +6.4% and volumes up +1.3%. But the implied level of inflation of +5.1% a massive turnaround on the -3.9% deflation reported in February, ahead of the war in Iran. Again, a sobering shape of things to come for the foreseeable future.

Online sales grew +10.5% year-on-year in March (+2.4% month-on-month). For Q1 as whole, online sales grew +11.7% compared to same period the previous year and +2.5% versus Q4 (which seems curious given Q4 includes Black Friday). Online penetration rose from 28.2% in February to 28.7% in March.

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

The microscope on inflation

The ONS CPI figures are always released a couple of days ahead of the monthly retail sales figures. Unsurprisingly, the March figure showed an increase to +3.3% vs +3.0% in February.

There is a tendency to oversimplify this and apply blanket assumptions across all areas of retailing, which simply do not ring true. For a start, CPI is based upon a basket of goods and is not all encompassing. Many of these goods are not retail-related, rendering even Retail Price Inflation (RPI) as something of a misnomer.

Although not explicit, the retail sales data provides a far more transparent window on the nuances of inflation. The headline inflation figure from the March data (I call it Shop Price Inflation) is +2.4% excluding fuel (2.6% inc fuel), lower than reported CPI (3.3%). And this is where it starts to get interesting (OK, more revealing than interesting).

Implied grocery inflation in March was +3.7%, up from +2.6% in February. No surprises there, food prices are likely to track above CPI for the foreseeable. IGD’s projections of FY figures of +3.8% (no escalation), middle scenario of +4.8% and worst case of +6.4% still seem a reasonable roadmap.

But blanket assumptions simply do not apply in non-food. In March, non-food inflation was just +0.9%, significantly below headline CPI of +3.3%. And the spread between non-food sub-sectors is extreme, ranging nearly 20ppts from +12.6% to deflation of -7.0%. Inflation is highest in Other Non-store Retail (market stalls etc) at 12.6%, followed by Jewellers (10.5%). Books (4.8%), Specialist Foodstores (4.8%) and Second Hand Goods (4.3%) are all running above headline CPI.

At the opposite extreme, PCs and Telecoms (-7.0%) and Electricals (-5.0%) are both deflationary, a constant in the retail market that not even a global conflict will change. More telling are other categories that are deflationary, notably Footwear (-2.2%), Sports & Toys (-1.2%), Furniture (0.7%) and Textiles (-0.3%).

Inflation is rising – but demonstrably not across the board. It is lazy and dangerous to assume otherwise.

Where do we go from here?

“It can’t last. It won’t last”. The economists will no doubt feel vindicated when April’s figures are released in a month’s time. They are unlikely to be anything like as positive as this month’s, especially as some of Easter was incorporated into the March figures. Rather than a moment of triumph, all this proves is the folly of spurious month-on-month comparisons, essentially a game of knowing that a good month will be succeeded by a bad one. Ad infinitum. Hardly vindication.

At the same time, consumer confidence indicators are not positive. GfK’s consumer confidence index fell by four points to -25 in April, the lowest level since October 2023. And this gained far more media coverage than I venture today’s strong retail sales figures will. The expectation seems to be of a pending consumer meltdown. Another personal gripe (to add to the list) – lazy interchangeable use of consumer spending and retail sales and assumption that they are one and the same. They are not. Retail sales are a sub-sector of consumer spending, though far smaller than most would believe (<30%). Expecting retail sales to slavishly follow consumer spending trends is another classic rookie error.

Headline inflation will rise further. Within retail, food prices will continue to rise, but it would be short-sighted to expect the same in non-food. Retail sales values will continue to hold up, buoyed to a degree by inflation. Consumers will continue to spend. At worst, volumes may come under some pressure as the year unfolds. Economists will over-react to this, the only growth worth its salt to them is supposed ‘real’ growth.

“It can’t last. It won’t last”. Maybe not. But even if spending comes off a bit, it wouldn’t be a disaster.