The Retail Note - Retail sales: the heat was on

Key Messages

• An inevitable deceleration in retail sales in July
• YoY retail sales values +3.8%, volumes +2.3%
• Far stronger than footfall figures suggested (-2.1%)
• MoM volume decline of -0.5%
• Shop price inflation eases from 1.6% to 1.5%
• YoY grocery spend +1.4%, volumes -0.6%
• YoY non-food spend +5.0%, volumes +3.8%
• Strong month for PCs & Telecomms, Cosmetics, Jewellers, Furniture
• Soft demand for Textiles, Chemists, Footwear
• Online sales -3.9% MoM, +6.5% YoY
• Online penetration declines by -90bps to 28.3%
• Consumer demand defying cost-of-living crisis narrative.

Never the twain shall meet. The three key indicators of consumer health – consumer confidence, footfall and actual retail sales – remain totally out of sync with each other, as they so often do. Footfall was terrible in July, yet consumer confidence hit two year highs. Retail sales – the only indicator that actually matters, yet receives less airtime than the other two – were somewhere inbetween. Not as euphorically high as the previous two months, but not weak by most measures.

July – an inevitable comedown

The doom mongers had a field day with footfall data that came out a couple of weeks ago. According to BRC-Sensormatic, footfall slumped -2.1% in July, on top of a decline of -3.4% in June, the heatwave apparently driving consumers away from the high street. Conversely, according to Gfk, consumer confidence improved from -17 to -14 in August, the highest level in over two years. Playing off these two indicators against each other makes zero sense – consumers felt better about life, but channeled this optimism into not venturing out of doors.

Confidence a very high level barometer at best, footfall a false friend that hardly ever correlates with actual retail sales. June a classic case in point – footfall down -3.4%, retail sales up +6.6%. Any regression model you may care to run between the two will always show virtual zero correlation, a relationship you would expect to exist, that simply doesn’t.

Retail sales figures always trump confidence and footfall in terms of relevance. July’s figures were always going to struggle to live up to the two bumper months that preceded, but they weren’t weak. Year-on-year retail sales values (exc fuel) were up +3.8%, while volumes were ahead by +2.3%. Not quite the highs of May and June (values +7.0%/+6.6%, volumes +4.8%/+5.0%), but not shabby.

Of course, the meaningless month-on-month comparisons so-beloved by economists painted a far worse picture. “Retail sales volumes are estimated to have fallen by -0.5% in July 2026. This follows a rise of +0.7% in June 2026 (revised down from a +1.0% rise in our previous bulletin), and a rise of +1.3% in May 2026 (revised up from a +1.2% rise in our previous bulletin). Non-food stores and non-store retailers fell back in July, which retailers attributed to demand being brought forward to June because of earlier than usual promotional activity”. So, shorthand for May was fantastic, even better than we first thought, June was better still, but not quite as good as we first thought, but July wasn’t quite as good as either.

A rare thing happened last month – for the first time in living memory, economist consensus (-0.5%) was in line with actual outturn (-0.5%). If only it were a meaningful measure…

Inflation – still coming down

Much was made of inflation figures released earlier in the week, which showed that CPI rose to 2.9% in July from 2.6% in June. That this was primarily driven by a jump in household energy bills rather than anything retail-related was reinforced by this latest retail sales release.

Implied shop price inflation was just 1.5% in July, down from 1.6% in June and around half the peak reported in April (2.9%). Lagging, with large increases still to come, or were assumptions made at the outset of war in the Middle East simply overblown? Probably an element of both.

Within these figures, implied grocery inflation of just 2.0% in July, down from 2.2% in June. Yet the chancellor John Healey proclaiming that the government is standing by to prevent the public from “being taken for a ride at the pump or the till”?. An industry operating at margins of sub 4% and reducing inflation to 2% (within target) can hardly stand accused of profiteering and any such suggestions are massively wide of the mark.

Performance by sub-sector

Usual variation in monthly performance by sub-sector – and a few questionable figures.

Grocery figures were suspiciously weak. Food sales grew just +1.4% year-on-year, while volumes declined by -0.6%. This +1.4% was significantly below other 3^rd party data reads, with the British Retail Consortium showing growth of +3.8% and Worldpanel by Kantar of +2.5%. Both of these seem far more credible and I would not be surprised to see an upgrade to the ONS figures in the months to come.

Higher headline growth in Non-food (YoY values +5.0%, volumes +3.8%), but a contrasting picture across the various sub-sectors. PCs & Telecoms (values +44.6%, volumes +46.1%), Charity Shops (+30.1%, +25.4%), Cosmetics (+24.3%, +22.0%), Jewellery (+19.2%, +9.5%) and Furniture (+9.5%, +9.4%) all continued their stellar run of growth, somewhat in contradiction of the prevailing cost-of-living crisis narrative.

At the other end of the performance spectrum, another challenging month for Textiles (-2.9%, -3.0%), Footwear (-9.1%, -8.4%), Chemists (-3.5%, -5.4%) and Music & Video (-11.1%, -14.3%). Most surprising of all was the weak performance of Sports (-4.4%, -2.7%). So much for the World Cup having a positive impact on retail sales.

Further evidence of the huge seasonality in online, as explored in our recent Retail Renaissance Paper #1: Death of Online? Paper. Online sales grew +6.5% year-on-year, but were down -3.9% on a month-on-month basis. The sharp decline in June more than offset the increase the previous month (+2.5%) and as a result, online penetration eased by -90bps from 29.2% to 28.3%. Back to where it was in April.

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

Where do we go from here?

It would be wrong to interpret the July figures as 1. Weak 2. A sign of a consumer slowdown. Fantastic as they were, the figures for May and June were not sustainable. July may not have lived up to those heights, but value growth of nearly +4% and volume growth of +2.3% is a more than decent outturn – if only the wider UK economy was growing at anything like this rate.

A change in political leadership and already a renewed spotlight on the high street. Inevitable amplification of the cost-of-living crisis narrative, although undoubtedly a reality for some, is not borne out in the retail sales figures. A misguided pledge to clamp down on grocery profiteering, yet a punitive business rates system and employment policies that are placing undue cost pressures on supermarkets. A vow to improve our high streets blinkered by a crusade against vaping shops and bookies, a moral-based response tackling the by-products of decay rather than addressing the root causes.

Retail. Never a dull moment.

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