I’m calling an imminent end to the consumer squeeze that seems to have preoccupied far too many retail commentators for far too long.
For the 3 months to January, wages grew by 2.8%, while the CPI figure for February was 2.7%. With labour markets tight and post-Brexit price increases annualising and increasingly dropping out of the equation, it was only a matter of time before the gap reversed. That time is now and the positive reverse will not be a temporary one.
Hardly the boldest declaration I’ve ever made. Given the amount of attention the negative wage / inflation gap has received over the last 18 months, nor is this a major watershed moment for the retail economy.
The fact is that it has been a red herring in understanding actual consumer spending patterns. When the metric was negative, it had a largely neutral effect on retail sales. Now that it is positive, its effect will sadly be equally neutral. To juxtapose economic theory with consumer reality, how many shoppers think ‘my wages are only going to grow by 2.7% this year and the price of goods has gone up by 3.1%, I can’t afford that, I’m not going to buy it’…
Against a backdrop of well-publicised distress among certain occupiers, retail sales have actually been ticking along quite nicely in the early part of this year.
Year-on-year retail sales values were up 4.3% and 3.6% respectively in January and February and volumes were up a respectable 1.5% and 1.1%. The BRC will update on March over the next couple of weeks, but the official ONS figures will not come out until 19 April.
Obviously, the figures for March in isolation may make for grim reading on account of the negative impact of the weather, but that notwithstanding, I would still forecast overall Q1 value growth of 3.5–4.0% and volume growth of 1.0–1.5%.
Second biggest trading period of the year
Easter is upon us. Given the disproportionate attention that is often given to ‘manufactured’ retail events (Black Friday, Valentine’s Day, Back to School, Halloween) and ‘mythical’ retail uplifts (major sporting occasions and Royal events), it’s easy to forget that Easter is traditionally the second biggest trading period over the course of a year behind Christmas. Easter is also the curse of the retail analyst as it is notoriously difficult to get a meaningful read on performance – and fate would have it that this year is even harder to read than usual.
The issue is that, unlike Christmas, Easter’s timing is not fixed and that causes massive year-on-year distortions. A huge peak in March is usually followed by a trough in April, or vice versa. And it is nigh on impossible to get a handle as to whether the trough outweighs the peak. To complicate matters, Easter period this year straddles both the end of March and beginning of April.
The actual numbers that come out in due will need to be treated with even more caution than normal. However, I would offer the following more qualitative views. An early Easter (as we have in 2018) tends to be less favourable generally than a late one. For certain retailers (especially DIY and gardening operators), Easter is a busier time than Christmas and a later one is infinitely preferable as it increases the chance of favourable weather. And as a general observation, the performance of Easter is very weather sensitive and, at time of writing, the forecast is not good.
An early, wet Easter is certainly not what the retail sector would be hoping for. But this is harsher reality for most retailers than the consumer squeeze that never was.