Online retail sales: stronger than irl
Tom Traill - 24 May 2017
Beneath the headlines of an above-expectation growth of retail sales in April, there are two increasingly divergent narratives – online and offline. Despite the unhelpful backdrop of Brexit uncertainty, rising inflation and falling real wages, retail sales volumes grew 4.0 per cent year-on-year, sounding an apparent vote of confidence in the UK economic outlook.
Digging deeper, there has been an extraordinary swing towards online shopping, bringing the market share to 15.6 per cent of UK retail sales, one of the highest densities in the world and roughly twice the comparable rate in the US. Online sales value growth reached 19 per cent value in the year to April. By implication, offline retail sales grew at 4.9 per cent per annum in nominal terms. For the total retail sales there is an implied deflator of 3%, this would mean that real, offline retail sales only grew at around 1.8%. Assuming online inflation is usually lower (lower overhead costs, more competition etc) then this suggests that the deflator for the high street is likely to be a little higher than for online sales, and implied High Street retail sales volume growth is lower still.
Food stores have the lowest internet penetration of the major sectors, around 5 per cent, but one of the highest rates of internet sales growth. Meanwhile the entirety of department store growth is digital. The extent to which online sales have been supporting the retail sales aggregate is clear in figure 1 below. After six years of consistent online and offline contributions the online element has risen sharply over the past year months reflecting tougher times that for the High Street.
Figure 2 shows the non-store retailing implied deflator (this is a proxy for internet sales inflation, around 75% of non-store retailing is online). Traditionally, the implied inflation rate of internet sales has been around 2 percentage points lower than for in-store sales, reflecting in part the compositional bias of online sales. However, for the moment at least, the inflation differential as closed. The explosion of internet sales is boosting both volume growth and consumer inflation.
Data source: ONS
Data source: ONS
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