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Key Messages

• Retail sales again surprise on the upside
• Feb retail sales volumes +1.2% m-o-m
• Far higher than economist consensus forecasts (+0.2%)
• M-o-m retail sales values up +1.5%
• Retail sales values up y-o-y +6.3%
• Volume decline of -3.3% y-o-y best performance since March 2022
• Surge in grocery demand (+11.3%) highest on recordâ€�
• …albeit highly inflationary (13.6%), with volumes down -2.3%
• Inflation much lower in non-food (6.9%)
• Volume and value growth in clothing, footwear, textiles and cosmetics
• ‘Big ticketâ€� demand more constrained
• Online sales recover m-o-m, but still down y-o-y
• Online sales values grow +2.6% m-o-m
• But down -3.5% in value (-10%+ in volume) y-o-y
• 22nd consecutive month of online decline
• Erratic retail sales going forward rather than impending collapse.

Six times better than economist consensus forecasts. February’s retail sales again surprised on the upside. And some. And even taking into account more meaningful metrics than the month-on-month comparisons, the picture was fairly bright, with healthy top-line growth in both food and non-food and volume declines far lower than previous months. But a very mixed picture in non-food retail sub-categories, with a discernible slowdown in ‘big ticket� items.

The headline numbers

Retail sales thankfully defied the adage that bad things come in threes. After the surprise rise in inflation earlier in the week and the subsequent hike in interest rates, few were expecting the consumer to salvage any pride in the wider economy. Not a universal triumph by any means, but there is still enough to be quietly positive about in today’s retail sales figures.

It’s fair to say that few economists have had a good week in their predictions. Again, they were wildly wrong in their retail sales projections. Economist consensus forecasts for month-on-month retail sales volume growth were a seemingly optimistic +0.2%, the actual outturn of +1.2% leaving a lot of egg on face (the exc fuel figure of +1.5% higher still). Retail sales values grew +1.6% m-o-m (+1.5% exc fuel). In essence, we spent more and bought more in February than we did in January.

So much for Christmas being a ‘last hurrah�, the explanation so many gave for a stronger-than-expected festive season. Sales would inevitably fall off in cliff in the New Year. But they haven’t. Indeed, the February figures were achieved despite an upgrade to the January ones (+0.9% versus +0.5% originally reported).

Of course, any retail analyst worth their salt knows that month-on-month comparisons are actually pretty meaningless given the seasonality of retailing and that year-on-year ones are the real figures that matter. Retail sales values (exc fuel) grew by +6.3% year-on-year in February, the best monthly performance since a COVID-skewed March last year. More importantly, this year’s growth was leveraged despite a similarly inflated comp in February 2022 (+11.6%).

Of course, the doom mongers will dismiss this growth as purely inflationary and major purely on the volume performance. Retail sales volumes (exc fuel) were down -3.3% y-o-y, but again, this was the shallowest decline since we went into high inflation territory last year. Above all, it is significantly better than the 10 month average of -6.0%.

Usually, the pre-pandemic comparisons the ONS make every month are pretty weedy (but media-friendly), but February is the month where the broken clock tells the right time. Seasonality is not a factor for once and we get a more meaningful comparison. Retail sales values (exc fuel) were up +16.9% vs February 2020 and for all the declines we have seen over the last year, retail sales volumes were ahead by +1.0%. So, yes, well and truly above pre-pandemic levels, for what that is worth.

Slowing demand in ‘big ticket� goods

But even more variance in individual sub-sectors than usual, some logical, some not. Food sales surged +11.3%, the highest monthly growth on record, eclipsing even the dark stockpiling days in March 2020 (+10.0%). But, of course, this month’s figures were largely driven by inflation, with foodstore volumes down -2.3%. The implied level of inflation (13.6%) somewhat lower than the 20% other ONS data may suggest, but clearly still massive.

Non-food sales values grew by +5.2%. What is significant about this is that it was leveraged against a ridiculously strong comp, non-food sales surging +39.1% in February 2022 (against a lockdown-impinged comp in February 2021). Non-food sales volumes were down -1.7%, with a more modest implied level of inflation of 6.9%.

Good month for: textiles (values +15.1%, volumes +9.0%), clothing (+13.1%, +3.5%), footwear (+26.0%, +19.3%), cosmetics (+33.3%, +20.4%), music & video (oh yes, +9.3%, +9.7%) and books (+10.0%, +2.9%). All these sectors enjoyed healthy value and volume growth - QED we spent more and bought more. The extraordinary growth of cosmetics reflecting consumers taking the fabled ‘lipstick effect� far too literally?

Bad month for: household goods (values -1.9%, volumes -8.7%), chemists (-14.2%, -21.9%), carpets (-1.5%, -11.1%), garden centres (-6.1%, -15.7%), DIY (-1.0%, -10.1%), sports & toys (-11.6%, -14.9%).

Weirdly bad month for: electricals (values -13.8%, volumes -15.3%) and PCs & Telecoms (-7.9%, +1.1%). In the case of electricals, very limited inflation and soft consumer demand. In the case of PCs & Telecoms, product deflation amidst a tide of wider inflation. Retailers actually sold +1.1% more stuff, but made -7.9% less money. A sobering reminder that inflation may not be helpful, but it is the lesser of evils for retailers.

Online � green shoots?

Mixed messages in online too and probably more questions than answers. An improving month-on-month trend, but annualised performance still in freefall, despite a weak comp base.

All online sales values declined -3.5% year-on-year. Comparing this to overall retail sales value growth of +6.3% makes a mockery of the ONS� calculations that online penetration is stable / steadily improving at 25%+. Be that as it may, -3.5% is tangibly less bad than the ca. -11% monthly average decline we have seen over the last year. But it was still negative growth on a very weak comp (-18.1% in February 2022).

Online grocery sales were down -1.5% year-on-year, while non-food online sales were down -5.0%. But this masked big contrasts between household goods (-6.6%) and department stores (+0.9%) and clothing (+4.3%).

The month-on-month picture was somewhat better. All online retail grew +2.6% m-o-m, with food (+0.5%) and non-food (+0.7%) both showing improvement. A turning point in the decline of online, which had seen both y-o-y and m-o-m declines for over a year? Possibly, but equally just a seasonal / weather-related quirk, again underlining the limitations of month-on-month performance comparisons? With annual online sales values still declining at -3.5% a month (and volumes therefore presumably down -10%+), it seems a bit premature to call a recovery in the online market.

The outlook

Some economists are refusing to give up the rule book � consumer demand must collapse at some point, the unexpected rise in inflation and hike in interest rates must be the straw that finally breaks the consumer’s back, surely?

It won’t be that simple � retail sales won’t simply collapse, not will they ride out the downturn totally unscathed. They will be erratic, some good months, some bad. Erratic is the only constant in retail.

Obviously, the ONS retail sales data always lags by nearly a month. March is almost done and we are only just getting the February figures. What will the March figures bring when we get them in a month’s time? I haven’t sensed a collapse in demand from retailer narrative, but the weather has hardly played ball either and whatever economists may say, this definitely has a profound influence on retail sales patterns (particularly in their obsession with month-on-month trends). But the strong performance in February, plus a demanding year-on-year comp base (March 2022: values +8.3%, volumes +0.8%) doesn’t inspire confidence that the numbers will be great.

April (which includes Easter) will be a better litmus test. The weather will hopefully have improved by then. And economists may even have got something right by then too.