Retail capped what was, perhaps, a surprisingly good year with a very strong finish.
Although overall retail sales growth moderated over that produced over the past couple of quarters, it still came in at a very solid 3.8 per cent. Stripping out inflation, sales grew by 1.6 per cent in volume terms. Core retail sales, which exclude auto, gasoline, and foodservice, grew by 4.2 per cent overall and by 2.3 per cent in volume terms.
Taking November and December as a whole, holiday season sales grew by 4.1 per cent overall and by 4 per cent for core retail – well above the expectations of most retailers.
Although consumer confidence and finances remain somewhat wobbly, most shoppers were determined to have a happy holiday and put their hands in their pockets accordingly. Lower gas prices gave most households a bit more headroom to spend, but in a reflection of the continued tight state of finances, the use of credit to buy products increased by 5.9 per cent, with a particularly sharp rise in the use of buy now, pay later facilities. This may well cause something of a financial squeeze as we move into the new year.
It was also notable that food service spend declined by 0.3 per cent over last year. While the numbers may eventually be revised upward, this is the first decline the sector has posted since February of 2021. Inflation in dining out has been very sticky, and to help manage budgets, we found that some people cut back a bit this year and transferred the money to buying things or spending on other experiences. Again, this is a sign that the consumer remains under pressure.
Another interesting point from our data is that more consumers bought products on discount this year than last year. While shoppers were generally willing to spend, they were laser-focused on getting the best prices and obtaining bargains and deals. Big promotional weeks and days at retailers saw strong jumps in trade, while normal trading days were weaker. This piling in on discounting was helpful for driving sales growth, although it remains to be seen what the impact on margins and profits will be. Interestingly, we have not seen this mindset dissipate as we have moved into the new year.
Online was arguably the star of the retail show with non-store sales growing by 10.2 per cent. Some of this is down to the convenience factor with more consumers taking advantage of fast and free delivery and store-collection options. However, some is also a consequence of the bargain-hunting mentality as online allows shoppers to undertake easy price comparisons and deal checks. Again, online’s lower margin nature may ultimately deleterious impact on profitability.
On a sector basis, most segments were in growth. Grocery stores posted a 1.1 per cent uplift which is reasonable but on the softer side for a holiday period. Extensive deals and offers across the category were unhelpful to growth, but so too was consumer caution which saw people lowering volumes in some products to save money. We also think most grocers did not do all that good a job of enticing the consumer with strong holiday ranges.
At apparel stores, sales increased by 1.7 per cent. Consumers splashed out on dressier products for the holidays and spent big on athleisure. However, middle market players and everyday garments were squeezed as shoppers remained more conservative with their spending. Department stores did not appear to join in the spirit of the season with a 2.7 per cent decline in revenues.
Over at furnishings stores, sales spiked by 7.7 per cent. Although this comes off the back of an extended period of weakness, it underlines that homes were very much the focal point of this holiday.
With 2024 behind us, the focus now turns to 2025. We believe the outlook is solid but there are a lot of wildcards from tax cuts to tariffs that could impact retailers and consumers.
