Festive performance worse than expected
Jan 19 2008 by Iain Laing, The Journal
APOOR Christmas for high street retailers was confirmed yesterday after official sales figures showed a 0.4% drop in sales volumes in December.
It also underlined the challenges facing retailers and the service sector in the year ahead, as consumers face up to rising energy and petrol costs, as well as the impact of recent hikes in mortgage interest payments.
Vicky Redwood, UK economist at Capital Economics, said the figures showed customers “shunned” the high street over Christmas.
She said: “We don’t see things getting any better from here. House prices are falling, so are equity prices, utility prices are rising, confidence is at a 12-year low … need we go on?” She added that, although Bank of England monetary chiefs might wait to see how sales fared this month, “surely this is enough to cement a February rate cut and more cuts thereafter”.
The Bank reduced interest rates in December, but voted for no change last week. The seasonally-adjusted figures from the Office for National Statistics revealed the largest sales decrease since January, when they fell 1.7%.
The largest contribution to the fall came from non-specialised stores – including department stores – where sales volumes decreased by 4.3%, the biggest decline since February 1994. Marks & Spencer has been the highest-profile casualty of the slowdown, with like-for-like sales down by 2.2% in the third quarter of its financial year – the company’s first drop in sales for more than two years.
In the North-East the Sunderland-based sofa store chain ScS has been the most noticeable loser, with its share price plunging as its broker said that profits were likely to be more than half that forecast. The company said it was curtailing expansion plans.
The national drop in sales volumes came despite evidence of price-cutting among retailers.
The total value of sales for the month of December was estimated at £33.9bn, 1.4% higher than the same month the previous year, the lowest growth since March 2006, when it fell by 0.2%.
Gavin George, head of retail at Ernst & Young, said that, while Christmas was relatively weak, it had not been the “complete wash-out the doom and gloom merchants were predicting”.
He said: “There was a huge variation in performance by retailers over Christmas, as tough trading conditions exposed the weak.
“While the strongest retailers across many sectors enjoyed high single-digit, or even double-digit, like-for-like growth, the weaker players typically suffered like-for-like declines.
“This trend of polarisation between the winners and losers is starker than ever before.”
Mr George noted that sales of big-ticket items such as electricals and furniture came under the most pressure, while online and niche sectors such as video games and mobile phones did well.
The ONS report follows other gloomy data earlier this month from the British Retail Consortium. It said that like-for-like United Kingdom sales rose by a worse-than-expected 0.3% – the weakest growth rate for three years.
The consortium’s director general Kevin Hawkins said the figure heralded a “very challenging” start to the year for stores, and called on the Bank of England to cut interest rates to boost high street spending.
