Retail sales remain robust: Home and Fashion best performing

Retail sales values (non-seasonally adjusted values and excluding fuel) rose by 1.8% in June, according to the Office for National Statistics (ONS). In volume terms, growth continued for the 27th consecutive month and rose by 4.0% year-on-year.

The three-month on-three-month metric, which gives a better indication of the underlying strength of sales, rose by 0.7% which marks the longest period of sustained growth since records began in June 1997.

ONS estimated that online sales rose by 11.4% year-on-year and accounted for 12.4% of total retail sales in June.

The equivalent measure from the BRC-KPMG Retail Sales Monitor (total retail sales values) showed growth of 2.9% in June – the strongest since January 2014, excluding Easter distortions. The likely cause for the difference in sales growth is the performance of small retailers which are generally not covered in the BRC measure. The ONS suggests that small retailers delivered growth of 0.3% in June, compared with 2.4% for large retailers which dragged down top line growth. Another source of difference lies in the performance of Food. The BRC recorded a rise in Food sales whereas the ONS suggested zero growth.

Retail Economics estimates that total retail sales rose by 1.6% in June, held back by the continued underperformance of the Food sector. Intense competition from the discounters (Aldi and Lidl) and rapidly changing consumer habits have kept prices from rising which are holding back any top line growth. We believe that growth in the Food sector will remain hard-fought as changing structural dynamics will force retailers to focus on price. The performance of Food and Non-food will become increasingly polarised over the next 6-12 months. Household’s positive backdrop of low inflation, rising real wages, near record levels of employment and buoyant consumer confidence will boost the Non-food sectors but is unlikely to benefit Food to the same degree.

Stronger performance in the housing market through rising mortgage approvals – up 8% in June according to the British Bankers’ Association – helped keep activity high in the Home category. Homewares (+6.8%) and Furniture and Flooring (+8.4%) had another strong month in June, building on 12 months of strong underlying demand. The number of home loans for house purchases hit a 15-month high which is likely to provide further support for this category in the coming months.

Clothing (+4.4%) and Footwear (+9.1%) were the other stand-out categories which benefitted from warmer weather in June. Although growth was marginally down on the previous month, the underlying trend remains strong for Fashion. Those retailers providing a seamless omnichannel proposition continue to drive sales from increasingly digitally-focused consumers. In June, Clothing and Footwear were in the top three growth categories in online non-food sales according to the BRC. Estimates suggest 24.9% of total Clothing sales were from online, up from 21.4% this time last year. The penetration of online in footwear is estimated to be even higher at 27.6% in June, up from 23.6% last year. However, many retailers were in the Summer Sales period which suggests margins were eroded over this period.

Read part 2 for more information on Footfall and Consumer spending.