Data: How to understand the December drop in retail sales

Office for National Statistics (ONS) statisticians calculated a 0.3% drop in seasonally adjusted sales volumes between November and December. There were several reasons why that was alarming.

A month-on-month drop is usually less telling than a year-on-year fall in sales. But this grabbed headlines as the expectation was for a rise during what is typically the peak trading month of the year. A poll of Reuters analysts suggested that the expectation was for a 0.4% increase.

Even more confusing was the detail of the figures. Food stores sales volumes fell 1.9% on the month – strikingly putting food store sales volumes at their lowest levels since April 2013.

Contrast this with the strong sales growth announced by major grocers including Tesco and Sainsbury’s. Data provider Kantar also reported that footfall in supermarkets had reached its highest level since the March 2020 lockdowns.

There is a lot to digest here and hopefully we can help. Here is a guide to how to understand all the retail sales numbers and what is going on in the sector.

What is volume? What is value?

An important thing to note is that the ONS figures we are quoting refer to the volume and not the value of all sales. On a month-on-month level, sales values were marginally up (0.1%) on the month before, but only when petrol sales were included.

Sales volumes refer to the quantity of products bought while sales values measure the money being paid at the checkout. The ONS calculates volumes by taking the estimates it has for sales values and adjusting them for year-on-year price changes using its incredibly detailed inflation figures.

The value estimates themselves are derived from a monthly survey of 5,000 retailers, which has been made representative of the industry with a mix of smaller and larger businesses included.

Why measure both volumes and values?

Economists find sales volumes figures important because price fluctuations can hide the underlying level of demand in the economy.

For example, price inflation can mean that people are spending more but ultimately buying less than they used to. That means that less stuff needs to be made to fulfil what consumers want, with that ripple effect causing impacts all the way along the supply chain.

To look at this in action, look at how the growth in volumes and values diverged since inflation picked up pace in 2021.

Volume figures are particularly important now because economists are looking for signs that UK consumers are slowing down their spending. Consumer confidence, as measured by Deloitte, stalled for the first time in three years during the most recent golden quarter.

Seasonal adjustments and why that matters

Another important thing to note is that the ONS figures are seasonally adjusted. This means that the body attempts to account for big events each month that might make it hard to show the underlying trend in sales.

The most obvious example of this over golden quarter is Black Friday. The huge sales event is usually included in November figures, but, when it happens late like it did this year, it can be included in December numbers. That made unadjusted December sales and footfall figures look stronger than they might have been otherwise.

The ONS asks additional questions of retailers on their Black Friday promotions to try and make sure that it is fully accounted for in the figures. When that seasonal adjustment is removed, the picture looks very different: December sales volume figures excluding petrol were up 4.4% on the year before and 12.4% on November.

The year-on-year picture

It should be stated that both the volume and value of retail sales, as measured by the ONS for December, were up on the same month in 2023. The increase in value was 3.5% non-inclusive of petrol and 3.8% when fuel sales were included. Food sales values were also up 0.4% year on year.

Volumes excluding fuel meanwhile increased by 2.9%. 

The year-on-year figures were what the BRC commented on in their statement on the ONS numbers, with director of insight Kris Hamer pointing out that “retail sales picked up in December, but this did not offset the shaky start to the ‘golden quarter’.”

Other sales figures to note

The BRC produces its own sales figures in partnership with consultancy firm KPMG. These usually come out a couple of weeks before the ONS figures and are based on a survey tracking over 100 of the consortium’s members. The sample size is therefore smaller than the ONS one, but it includes a lot of retail big hitters and the majority of the UK market by turnover.

For December, the BRC-KPMG monitor showed a 3.2% year-on-year increase in sales values, so pretty much in line with the comparable 3.5% ONS rise. They usually track each other closely, but some of the more detailed estimates might vary due to the methodological differences between the two.

On top of those numbers are the Kantar grocery market share figures. These are based on an ongoing panel of 40,000 consumers rather than businesses like the other two surveys.

The Kantar numbers are most-quoted when it comes to what share different supermarkets have of the overall UK market, but the research firm also produces an estimate of total take-home grocery sales. For reference, these showed a 2.1% increase in take-home sales in December 2024 versus 2023.

So, with all that explained, are the numbers something to be worried about? Here is what industry commentators are saying.

BRC director of insight Kris Hamer: “While retailers welcome this boost to sales, it will barely touch the sides of the £7bn in new costs from the Budget facing the industry in 2025. Higher employer national insurance contributions, higher National Living Wage, and a new packaging levy will heap pressure on an industry that is already paying more than its fair share of tax.”

PwC UK leader of industry for consumer markets Lisa Hooker: “While the headline retail sales figures will add to the disappointment following lacklustre wider GDP growth reported earlier in the week, there are some positive signs of consumer spending momentum, particularly in the leisure sector. This reflects the higher disposable income of typical households following wage increases, lower inflation and lower national insurance contributions experienced in 2024.

Deloitte head of retail Oliver Vernon-Harcourt: “Our Deloitte Consumer Tracker data shows that one in two consumers were generally more frugal with their December spending and consciously cut down on luxuries. The priority for retail leaders now revolves around combatting looming cost increases, particularly from rising National Insurance Contributions.”

EY UK&I retail lead Silvia Rindone: “Despite supressed consumer confidence, many retailers are delivering strong sales and volume growth. These are driven by clarity of their proposition, a deep understanding of their customers’ needs and excellent operational skills. Retailers that have failed to invest in their capabilities or proposition are more likely to be struggling and its unlikely consumer demand will increase quickly enough for many.”