Hard year could end in a soft landing

Jan 8 2008 By Andrew Mernin

RETAILERS endured a worse Christmas than expected, according to figures showing sales in December growing at their weakest rate for three years.

The British Retail Consortium (BRC) said like-for-like UK sales had risen 0.3% last month, compared with 2.5% growth in December 2006 and 2.6% the year before.

Last month’s rise was also the weakest since March 2006, the consortium said, with the latest three-monthly trend also down.

An nebusiness poll asked North-East firms if festive trading was better than last year. The results showed signs of a slight downturn in fortunes with 53.8% of people answering No and 46.2% voting Yes.

Meanwhile, CBI regional director Sarah Green urged businesses to be cautious before a difficult year.

She said: “I think it’s been a bit of a mixed bag over Christmas for businesses in the region.

“This year could be a difficult year for British businesses, but it’s important not to exaggerate the risks. The next 12 months will bring a soft landing after two years of above-average growth.”

BRC director general Kevin Hawkins said the figure heralded a very challenging start to the year for stores and he called on the Bank of England to cut interest rates from 5.5% this week to boost high street spending. He said: “This result is somewhat worse than we expected and points to a very challenging first half for 2008.

“Given that the full effects of the Bank’s previous increases in interest rates have yet to be felt by many households, retailers and manufacturers alike need a rate cut now – preferably a full half-point.”

Analysts had expected like-for-like sales to grow by 1% in December.

The sluggish month confirms comments from major retailers, including Next which spoke of difficult trading and said its UK stores probably would not return to like-for-like sales growth this year.

Marks & Spencer is due to provide a trading update tomorrow, and Sainsbury’s follows on Thursday. Shares in both companies have taken a pounding in recent days as investors brace themselves for disappointing figures.

The BRC survey, which covered the five weeks between November 25 and December 29, found total sales – including store openings - were up 2.3% compared with the same month in 2006.

But the growth rate between October and December fell to 0.8% from 1.8% for like-for-like sales, and to 2.8% from 3.8% on a total measure. Head of retail at accountancy firm KPMG Helen Dickinson said the figures did not bode well for this year and sales decreases could be on the way.

She said: “Sales did grow in December, but as the worst performance since March 2006, growth can only be described as weak.

“This sets the scene for the new year ahead and like-for-like sales look set to move into negative territory as they did in 2005.

“This does not bode well for retailers struggling with rises in their cost bases of around 4%.”

She said there was evidence that even shopper spend before Christmas had been replaced with smaller numbers of big swoops for bargains.

PAGE TWO: We spoke to businesses across the region to find out about their festive fortunes. Turn the page to find out what they had to say.