This past week has summed so much of the mayhem surrounding retail right now. We have seen Asda report LFLs down 3.9%. All the more shocking since earlier in this new reality of deflationary food retailing it seemed by far the best placed and most comfortable of the big four. Now that the others have responded life is rather tougher. The much tougher times for Jack Wills these days is reflected in lots of changes in senior management, while the turnaround at Moss Bros continues, underlining how ultimately, retail is a trading business and having a real trader at the helm (ie Brian Brick) is transformational. Meanwhile, the first uptick in profits for 4 years at M&S is deemed a recovery by a City that has bet the farm by hiking the share price by 50% plus under Marc Bolland.
Against this background, we have had the retail sales numbers from the ONS. These were greeted as fantastic news by the City and media. It never ceases to amaze me how little importance is attached to sales revenue in the square mile where focus on the ONS numbers is on the wrong data series: the volume numbers are a misleading metric, especially when inflation or deflation is rife. And largely ignoring price changes is very dangerous. April’s retail sales numbers by value (ex fuel) were actually flat yoy. And a retail market that is forced to keep lowering prices to persuade consumers spend is not healthy but under massive pressure.
I have been warning for the past year that retail price deflation (as opposed to the wider RPI covering the whole economy) is here to stay, at least until massive oversupply is dealt with. With yoy costs increasing at around 3% and selling price deflation at 5%, far reaching structural change is on the way.
** More detailed analysis of these topics, plus forecasts of structural change, can found in the premium content of richardtalksretail.co.uk Get in touch for more details.