MNI 5 THINGS: January Discounting To Underpin UK Retail Sales

By Jai Lakhani

     LONDON (MNI) - After a very weak December, UK retail sales are seen

bouncing back in January - although the scale of the rebound may be

disappointing to many and may not reverse the recent downward trend.

           January Retail    January Retail    January Retail     January Retail

         Sales Incl. Fuel  Sales Incl. Fuel  Sales Excl. Fuel   Sales Excl. Fuel

                    % m/m             % y/y             % m/m              % y/y

--------------------------------------------------------------------------------

Prior                -0.9               3.0              -1.3                2.6

MNI

Median                0.2               3.4               0.2                3.1

     --Upside Surprises Support Rebound, But Not Recent Trend

     Since 2011, there have been four upside surprises and four downward

surprises in January. However, the last two years have seen a downside surprise

of -0.9 in 2017 and -0.8 in 2018. Despite an average surprise of 0.125pp, the

growing concerns of a downside surprise are understandable.

     --Eating Away At Food Sales

     As MNI analysis noted, temporary factors boosted food sales through the

summer of 2018, pushing overall sales readings higher. Since then, food sales

have registered three consecutive negative 3M/3M readings.

     --BRC Survey Data Suggests Better January For Retailers

     The BRC-KPMG survey showed total sales up by 2.2% in January -- the highest

rate of growth since June and above the respective 3-month and 12-month

averages.

     However, a small caveat to this is that promotional discounts were a main

driving factor behind growth. As the official data is seasonally adjusted, if

this is a January effect, it is unlikely to fully come through in the official

retail sales reading.

     --Aggressive Pricing Needed To Save Sales Bloodbath

     In recent months, the implied price deflator has been trending downwards.

In December, the deflator grew by just 0.6% y/y - it's lowest reading since

November 2016. The key takeaway from this is likely that retailers have had to

squeeze margins in order to compete in an extremely tough spending environment.

The effect is seen clearly in the clothing/footwear and household good stores

sectors of retail sales.

     --VISA Spending Provides Little Support of Rebound

     If the VISA data holds true, retail sales won't start the year on a bright

note. Overall VISA spending fell by 1.3% y/y in January. One of the worst

performers was clothing and footwear which declined by 3.7% y/y. However, given

the data is not seasonally adjusted, this could skew the data.

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

[TOPICS: MABDS$,M$B$$$,M$E$$$]