Festive cheer or one last hurrah?

Jan 27 2010 by Chris Knox, The Journal

As the recession finally ends, Christopher Knox looks at the latest figures from high street retailers and asks whether a happy Christmas will lead to strong trading in 2010.

Retailers had also learnt valuable lessons from the Christmas sales plunges of 2008 and were less eager to maximise stock – a mistake which saw shops slashing prices well before the new year in order to clear their shelves.

Food sales growth picked up to its strongest since June, with shoppers buying foods in premium ranges – a trend that helped the big supermarkets to fight falling food price inflation.

Non-food was just as successful, with most shops performing well, with the exceptions among clothing retailers being M&S, Debenhams and Alexon.

Despite overall gains, analysts still believe that 2010 will prove to be another tough year for the high street and that a buoyant Christmas may prove to be a false dawn.

The party has already been spoiled by new figures from the Office of National Statistics, which show that UK retail sales rose by just 0.3% between November and December, after analysts predicted a rise of more than 1%.

Despite efforts to discount key items, rising prices were blamed for the slow increase, with economists left disappointed given the positive reports from retailers over the festive period.

Richard Perks, director at consumer analyst Mintel, said: “By any standards, 2009 was an odd year. Consumers were cautious, worried about their finances and keen to pay off debt. But they had a huge windfall gain from lower interest rates and that far outweighed the impact of rising unemployment.

“They cut back on much expenditure but clung on to as much of the boom-time lifestyle as they could. So, leisure spending suffered, but retail spending held up and, in fact, steadily improved in the run up to Christmas.

“By the end of the year, consumers were faced with being better off, having been virtuous for much of 2009 and beginning to get fed up with austerity.

““The prospects for 2010 are not good. Interest rates are likely to go up sooner rather than later and, after the election, there will be tax increases and spending cuts. Consumers will be squeezed and will find 2010 tougher than 2009.”