The retail note - 19 January 2018

19/01/2018 - Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.

Christmas Trading – Round 3

Official Christmas and FY 2017 retail sales figures from the ONS, Christmas performance figures from Primark, Halfords, Carpetright and Bonmarché

• Stellar trading figures from Primark. The business reported a 9% increase in revenues (+7% on a constant currency basis) for the 16 weeks to 6 Jan. Although it did not provide a figure, the company said that like-for-like sales growth in the UK was “strong”. Primark opened five new stores over the period in Europe, and reaffirmed its commitment to open 1.2m sq ft over the financial year.
• Good figures from Halfords. The company reported a 3.2% increase in sales over the 15 weeks ended 12 Jan. Its retail segment grew by 3.3%, while autocentres saw revenue increase by 1.9%. On a like-for-like basis, sales for the group increased by 2.7%, with motoring showing the weakest growth at 0.3%, closely followed by autocentres at 0.7%, whilst cycling grew by a very healthy 7.8%.
• Less good figures from Carpetright and Bonmarché. Womens value clothing retailer Bonmarché reported a 5.5% fall in sales for the 13 weeks ended 30 Dec, with in-store like-for-likes down 9.7%, but boosted by a 28.5% increase in online sales. Carpetright issued a profits warning on the back of weak post-Xmas trading. Group sales fell by 2.3% for the 11 weeks ended 13 Jan. The UK saw a sales decline of 3.6%, with a decrease of 1.4% within the flooring category and a further material decrease in bed sales. But CEO Wilf Walsh emphasised that “it is not Armageddon”.
  Stephen Springham, Head of Retail Research:

‘A Record Christmas’. ‘A Bumper Festive Season’. ‘The UK Retail Market Enjoys Its Best Annual Growth Since 2004’. ‘Despite Hefty Inflation and a Multitude of Headwinds, Volume Growth in UK Retail was Significantly Above 10 Year Averages in 2017.’ As the media headlines could read, but sadly won’t. All the aforementioned statements are factually and statistically true and, by all accounts, not unduly selective. Seldom in my 25 years of analysing retail have a seen such a disconnect between the actual numbers and the tone of both narrative and sentiment.

The irony is that after months of frenzied speculation as to retail fortunes over Christmas, the official outturn figures from the ONS are largely ignored when they are finally released. The column inches given over to spurious footfall data, which retailer had the best Christmas advert, how busy (or not) shops were on Black Friday and how the retail sector is apparently staring into the abyss on the back of a couple of high profile wobbles and below-par trading performances, would be far better served by insightful, in-depth analysis of the 103-page ONS Retail Sales release that was put out today. To give another footballing analogy, it’s a bit like feverishly tracking transfer activity, but not watching any of the games. And then not bothering to look at the league table.

Away from the hyperbole, the headline figures are thus: year-on-year retail sales values (exc fuel) were up 4.1% in December, while volumes (i.e. stripping out inflation) were up 1.3%. Bearing in mind how aggressive last year’s comps were (values +5.1%, volumes +4.9%), these latest figures are fairly staggering. Taking Q3 as whole, values were up by 3.9% and volumes by 1.0%, again surpassing even the most bullish forecasts (not that there were many of those).

Disappointingly, even the ONS seem to have bought into the negative narrative and the accompanying commentary appears intent on downplaying their own numbers. They should know better than to lead with month-on-month and quarter-on-quarter comparisons and their assessment of the full-year figures is also overly-downbeat and lacking in context. ‘For the whole of 2017, the quantity bought in retail sales increased by 1.9%; the lowest annual growth since 2013’ is a very disingenuous headline. Overall, UK retail sales values (exc fuel) actually increased by 4.5% last year, the highest level of annual growth since 2004 (+4.9%). Yes, of course this figure was helped by inflation, but volumes were still strong. +2.1% (exc fuel) may have been below the previous two years (when, lest we forget, we had heavy deflation) but this is healthily above the 10 year average (+1.8%). Given everything that is going on in the macro economy, any volume growth is extraordinary.

Why the huge disconnect between the actual numbers and the general ‘retail mood’? On the one hand, we need to look beyond the headline statistics. If there were causes for concern in the ONS figures, they were that November’s retail sales were stronger than December’s (values down 1.2%, volumes down 1.6%). This would suggest that the worst case scenario around Black Friday has again come to pass, namely that it dragged consumer demand forward from December and therefore had a materially negative impact on margins. Debenhams’ experience would seem to support this and is genuinely a worry.

The ridiculous notion that ‘online was the only winner’ over Christmas was also put into perspective by some surprisingly transparent ‘devil in the detail’ stats from the ONS. As a headline figure, online grew year-on-year by 9.4% in December. However, the vast majority of this growth (7.5 percentage points) was actually driven by store-based operators. Just 1.9 percentage points was driven by pure-play operators (e.g. Amazon, ASOS, BooHoo, AO.com). The most ringing endorsement for multi-channel retailing and evidence of the symbiotic relationship between stores and online that you are likely to get.

It would nevertheless be wrong to interpret the ONS figures for December as a triumph. This is evidently a degree of distress amongst some retailers, but it is still just that – certainly not the Armageddon that the media are depicting. Retailing is tough and 2018 will undoubtedly be a very challenging year. As ever, it will be the survival of the fittest and some operators are tangibly fitter than others.

Fonte:http://www.knightfrank.co.uk/blog/2018/01/19/the-retail-note-19-january-2018

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