In May, retail sales grew by 0.9 per cent on May 2016, their slowest pace since April 2013, according to figures published today by the Office for National Statistics. Having reported healthy growth figures this April, there were some expectations that sales would continue to recover this month from the poor start to 2017. Instead, in May, non-food sales declined, causing the overall rate of growth to slow down dramatically.
While the quantity of food bought grew marginally in May, up 0.1 per cent on the same month a year earlier, non-food declined by 1.2 per cent. Within non-food, the most significant drop off in sales came for household goods stores, quantities sold falling by 6.4 per cent year on year. Compared to this, textile, clothing and footwear stores had a comparatively good time - their volumes sold growing by 4.5 per cent.
At face value this suggests that the peak in sales in April, when the ONS reported growth of sales volumes of 4.3 per cent on the previous year - the strongest since November - was a flash in the pan. Question marks do hang over this April figure. The Retail Sales Index is adjusted to take calendar distortions into account, for instance the movement of Easter into April this year, when it sat in March last year. Such movement makes a direct comparison between the months inaccurate, as one would include a two-week holiday period, while one wouldn’t. This is very difficult to account for, as any number of factors could make one Easter more successful than another. A later Easter is likely to bring with it warmer weather, encouraging shoppers to buy into spring and summer clothing ranges and takeaway food. In short, like snowflakes, no two Easters are alike, which makes accurately removing the ‘seasonal’ element from the figures nigh on impossible.
It does seem that April’s RSI growth rate was overestimated. Looking to the British Retail Consortium and KPMG Retail Sales Monitor, which contains sales figures unadjusted for calendar irregularities, although April saw a lift in sales made inevitable by the inclusion of Easter, this by no-means compensated for the poor few months at the beginning of the year. The three-month average growth stood at 2.0 per cent, with the majority of this driven by food sales, which grew by 3.6 per cent in the three-months to April, against non-food, which grew by 0.7 per cent in the same period. When compared to the unadjusted sales values published by the ONS as part of the RSI release, the patterns over the past few months are similar.
Annual Total Retail Sales Growth (% year-on-year), RSI vs. RSM
Source: Office for National Statistics, BRC-KPMG Retail Sales Monitor
In May we saw a continuation of this trend, with food sales growing 4.3 per cent in the three months to May, whilst non-food sales grew by only 0.1 per cent in the same period, the slowest three-month average growth since May 2011. Price inflation is behind this divergence. Food prices, as recorded by the BRC-Nielsen Shop Price Index, have inflated in every month since February, with April’s inflation of 1.4 per cent the fastest rate of growth since January 2014. Shoppers are buying the same amounts of food, but paying more for it, and this is cutting into the amount they have left over to spend on non-food items.
The ONS’s release today paints much the same picture. Whilst food volumes bought have increased by only 0.1 per cent, values spent grew by 2.6 per cent in May. In the same month, non-food volumes fell by 1.2 per cent, whilst values increased 1.8 per cent. Inflation has risen faster than expected this year with the decline in the value of sterling in June last year, following the vote to leave the EU, largely to blame for cost increases. With wages failing to grow to compensate, consumers are seeing more of their earnings going on food, and are left with less to spend elsewhere.
By Anoush Darabi, Junior Analyst, Retail Insight and Analytics, BRC