INTEREST RATES TAKE THEIR TOLL

6th November 2007

Total Market

• UK retail sales rose 1.0% on a like-for-like basis, compared with October 2006, when sales were up 2.6%. October’s growth is the weakest since the 0.5% reported in November 2006 and is below the average for both 2006 and 2007 to date.
• The three-month trend rate of growth fell to 2.0% from 2.1% in September for like-for-like sales, and to 3.9% from 4.0% for total sales, reflecting the continuing growth of retail space.

Kevin Hawkins, Director General, British Retail Consortium

“This result reflects the downward trend in sales growth that we have been anticipating as a consequence of higher mortgage interest rates and other pressures on household incomes. It points to some challenging trading conditions for many retailers in the run-up to Christmas, which are likely to persist until interest rates are reduced and consumer confidence begins to improve.”

Helen Dickinson, Head of Retail, KPMG

“A disappointing month for many retailers. The 3% total and 1% like-for-like increase in sales over the same period last year represents the worst performance since November 2006, which itself was the worst month of that year. Clothing had a poor month, which after the pick-up in September will have left many nervous as we lead in to the crucial Christmas trading period. That coupled with an increasing aversion to big-ticket purchases does not bode well. Despite this backdrop, food continues to hold up well.”

Food & Drink sector performance – by Joanne Denney-Finch, CEO, IGD
“Food and drink sales continued to grow, although marginally below last year’s level. October provided numerous opportunities for retailers to showcase promotions for Halloween, religious festivals and the Rugby World Cup.

“Christmas started instore, and some retailers made announcements on price-cutting. Moving early for Christmas is recognition that many consumers are tightening their belts, although how this will impact performance remains to be seen. Last year most retailers turned in strong performances despite a slow start, and this uncertainty may influence promotional phasing, with retailers keen to hit Christmas goals as soon as possible.

“The fight is on to provide great value for Christmas and retailers are already jockeying for position. Some great products have begun to appear instore, with grocers preparing to contest leadership on both quality and price.”

Non - Food

• The unseasonably mild weather hit clothing and footwear sales. Furniture and homewares slowed, particularly discretionary purchases, but health and beauty held up well.
• Consumer confidence is being hit by interest rate rises, the slowing housing market and financial worries after the banking crisis. Consumers are more and more cautious about making major purchases.

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