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High street spending at two-year low

August was the worst month for spending across the high street in more than two years as disruption from riots and looting combined with worsening consumer sentiment to cause shoppers to trim their purchases.

Total sales fell back by 2.2 per cent in August compared to the same month a year ago, the worst year-on-year fall since 2009, according to the BDO High Street Sales Tracker.

Retail sales in the homewares sector fell by 2.4 per cent, driven down by consumer reluctance to shell out for big ticket household items, which have suffered the most in the downturn.

Fashion retailers also experienced a tough month, with sales falling 2.4 per cent. This echoes concerns that the profit margins of value fashion retailers are suffering as the price of commodities such as cotton rises, and sales volumes fall.

Don Williams, head of retail at BDO, said the figures reflected the “self inflicted pain of the UK riots” as shoppers stayed away from trouble-hit high streets, noting the continued trend for rising internet transactions, which were up 40.2 per cent on a year previously.

“The UK consumer is still spending the same pound as last year, but inflation means they’re getting slightly less for it,” he said, adding that a low single-digit fall in sales volumes was “to be expected”.

Mr Williams believes many retailers have “over bought” and will now need to discount to get rid of unsold stock.

“If retailers bought with the expectation that volumes would fall, they will be able to discount and use promotions judiciously, rather than widely and deeply,” he added. “We are clearly in a harder for longer, for less, environment, and there will be winners and losers. In markets like this, if you’re rubbish, you will fail.”

Although the 2.2 per cent fall was nowhere near the record 10.6 per cent drop seen following the Lehman crisis in November 2008, retail analysts believe that a sustained restriction on spending rather than a steep decline and bounce back, may prove more damaging in the long term.

As the reporting season kicks off this week, double-digit falls in like-for-like sales are expected to be revealed by quoted retailers. Adam Cochrane, retail analyst at UBS, is expecting retailers exposed to the electrical goods sector to be the hardest hit.

He forecasts that Comet, the UK arm of Kesa, could report a 25 per cent decline in like-for-like sales when its parent company unveils first quarter trading figures on September 15.

Additionally, Mr Cochrane forecasts that Dixons will reveal a 12 per cent fall in like-for-like sales at its UK branches of Currys and PC World in first quarter figures on Wednesday, and expects Home Retail to report an 11 per cent like-for-like sales fall at Argos at its half-year results on Thursday.

Source : Claer Barrett – Financial

04 September 2011
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