Retail sales on the rise, but has Christmas come early?

The Office for National Statistics recently released their retail sales update for October, which saw retail sales volumes rise by 0.8% in October 2021, with volumes 5.8% higher than their pre-coronavirus levels. Retail sales were also revised upwards from a fall of 0.2% between August and September to be unchanged.

According to the latest figures, non-food stores were the main retail sector that saw a rise in sales volumes, increasing by 4.2% in October 2021.

Clothing stores also reported an increase of 6.2% over the month with feedback from some retailers suggesting that early Christmas trading had boosted sales. Clothing stores sales volumes in October 2021 were only 0.5% below pre-pandemic levels in February 2020.

Automotive fuel sales volumes also fell by 6.4% in October 2021 as they returned to more typical recent levels following strong growth in September; volumes were 5.0% below their February 2020 levels.

However, food store sales volumes fell by 0.3% in October 2021; despite the fall in October, volumes were 3.4% above pre-coronavirus pandemic levels in February 2020.

The proportion of retail sales online also fell to 27.3% in October 2021, its lowest proportion since March 2020 (22.5%) but still substantially higher than the 19.7% in February 2020, which was before the coronavirus pandemic.

Industry Reaction

Emma-Lou Montgomery, associate director at Fidelity International: “Has Christmas come early for the retail sector and is the surge in high street spending the start of a new consumer confidence? After the latest inflation hike, which has pushed the cost of spending to a 10-year high, the 0.8% rise in sales in October is more likely to be the result of yet more of that pandemic-inspired panic buying than any sign of a return of consumer confidence.

“The uptick in sales will certainly be welcomed though by the nation’s weary high street retailers, who so badly need a decent Christmas this year. With inflation at a ten-year high, consumer confidence faltering, and stock shortages caused by supply-chain hiccups, life certainly hasn’t got any easier for retailers of late.

“This time around its online instead where sales have caught a cold this month, with clicks-and-mortar volumes dipping to 27.3% of overall sales in October 2021, their lowest since March 2020 (22.5%) but still significantly higher than the 19.7% pre-pandemic.

“How this all-too-familiar Christmas tug-of-war between the high street and online plays out in the longer-term remains to be seen, but so far the festive spending spree – whether driven by real cheer or by another bout of consumer panic – will give retailers a rare reason to be cheerful.”

Jessica Moulton, Senior Partner, and leader of the Retail and Consumer Packaged Goods Practice at McKinsey & Company believes fears of item shortages could have contributed to the rise in retail sales.

She comments: “There appears to be some early Christmas buying compared to previous years, probably spurred by concerns about item availability. And a desire not to miss out on the festive season.

“Notably, the split between online and physical shopping seems stable, with online 8 percent points higher than before the crisis. Consumers are taking advantage of all the improvements retailers made to their online offers during covid – but they still prefer stores for 7 out of 10 purchases.”

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, believes the recent developments could lead to increased expectations of a rise in interest rates in December. She commented: ‘’There are signs Christmas has come early for retailers, with many shoppers not waiting until Halloween was over before hitting stores, spooked by warnings that some gifts and toys could be in short supply this year.

“The data also seems to show the squeeze on incomes is already being felt with shoppers keen to sniff out a bargain in charity shops and on auction sites. Sales volumes in second-hand goods stores accounted for a big chunk of the 7.2% rise in volumes in other non-food stores.

“There was a fresh surge in clothing sales, which jumped 6.2% over the month. It’s little surprise that shoppers are prepared to splash more cash and ensure they get their hands on the latest styles given that people have been waiting to get the parties started for so long.

“Other ONS data shows that more staff have headed back to the office now – with half of businesses saying their workforces had returned to their normal place of work up from a third in early September. Plenty of employees clearly want to put their best foot forward when it comes to meeting colleagues once more so revamping work wardrobes also seems to have driven sales.

“Online sales dipped in October by 0.6% as shoppers appear more enthused and confident about hitting the shops, resulting in a fall in the proportion of online sales to 27.3% in October 2021, from 28.1% in September.

“However, while this is the lowest proportion of online retail spending since March 2020 (22.5%), it remains far higher than the proportion of online retail spending since the crisis hit in February 2020, when it stood at 19.7%. Another survey out from the ONS this week revealed that although footfall has risen slightly last week compared to the previous week, it’s still only 85% of pre-pandemic levels.

“Other data revealed that more than half of companies (51%) do expect more than three-quarters of the workforce to come back to their normal place of work, one in eleven companies don’t expect staff to return. This big shift will continue to have ripples right across retail, particularly for stores in town and city centres where footfall remains depressed compared to retail parks.

“Although shoppers are keen to browse, they are likely to be sniffing out even more bargains as we head towards Christmas as there are also signs that the higher levels of spending we’ve seen recently are easing off. In the week to 11 November 2021, consumer spending on credit and debit cards fell slightly to 101% of its pre-pandemic average from 105% the week before. Nevertheless, the rebound overall in sales and signs of further improvement in the public finances, with borrowing in October coming in £2 billion lower than September, are likely to add to expectations that there could be a rise in interest rates in December.’’