The ONS retail sales for September look quite encouraging, until one looks below the surface. The headline numbers suggest relatively buoyant demand with yoy sales growth by value +3.4% averaging out the last 3 months. However, this growth has all been driven by online and stripping web sales out gives you a negative yoy sales number. A sale is a sale but when profitability is taken into account, this online-dependent growth will have diluted margins.
While this is the toughest retail market anyone has ever seen, 2016 is seeing a revival in online retail sales growth. With 75% of the calendar year now behind us, yoy online sales growth is averaging 16.6% – by far the fastest rate for 5 years. This is being driven particularly by pure plays and household goods retailers.
A key barometer of retail trading health is promotions. Our Tracker measures price promotions across all the sectors, by company. This week 64% of the entire industry is selling on discount, reflecting weak demand and a customer taught to wait for mark downs before buying.
Against this background one can easily see what was exercising Tesco so much when Unilever tried to raise its prices. Contrary to current City and political thinking, some retailers may try and increase their prices next year when currency hedging runs out but the consumer will literally and metaphorically not buy it. Price deflation in retail will stay until there is a reset of the relationship between supply and demand. However tough trading is now, it’s a picnic compared to what awaits us next year.