WEATHER AND CLEARANCES DISTORT SALES

Tuesday 10th July 2007

• UK retail sales rose 3.0% on a like-for-like basis, compared with June 2006, when sales were up 2.3%. Despite June's improvement, growth in the second quarter of 2007 averaged only 2.5% compared with 3.5% in the first quarter.
• The three-month trend rate of growth fell to 2.5% from 2.8% in May, for like-for-like sales, and to 4.6% from 5.0% for total sales, reflecting the continuing growth of retail space.
• Sales patterns were distorted by exceptional weather both this June and last June, the World Cup last June and some clearance sales starting earlier this year. Torrential rain hit clothing and footwear, DIY and gardening, but did drive footfall in department stores. Food sales slowed against last year's World Cup and gains in homewares and furniture were largely discount-driven.
• Consumer confidence has been hit by interest rate rises. Consumers are more cautious about making major purchases, but are taking advantage of heavy discounts to buy now in anticipation of a further rate rise.

JUNE Like-for-Like Total % change on year ago 3.0% 5.1%

APRIL- JUNE Like-for-Like Total % change on year ago 2.5% 4.6%

Kevin Hawkins, Director General, BRC comments:

"These figures mask wide disparities between product categories.

"Higher than expected overall growth has been achieved by heavy discounting of non-food goods which has tempted consumers to bring forward major purchases in anticipation of more rate rises. Non-food figures were also boosted by the comparison with relatively weak growth a year ago. This non-food sales growth has outweighed the slowdown in categories such as clothing, DIY and food which were badly hit by June's poor weather."

Helen Dickinson, Head of Retail, KPMG comments:
"Given comments by many retailers over the past few weeks, these may appear a slightly surprising set of results. But they mask a complete reversal of the trend prevalent for many months - food and drink was not the driving force behind them. This sector had strong comparatives to beat given the boost to sales last year during the football World Cup - and hence was one of the worst performing sectors in June 2007.

Conversely, the other sectors had weak comparatives (as the timing of the England games coincided with peak trading periods). These comparatives, coupled with high levels of promotional activity to drive footfall given the poor weather this year, have generated some strong results, particularly in the home related sectors. Although encouraging at the sales level, the impact of the high discounting on margins will be felt as the year progresses."

Dr. Gavin Cameron, Reader in Macroeconomics, Oxford University, comments:

"Few people were surprised by last week's decision by the Monetary Policy Committee of the Bank of England to raise interest rates by a further quarter of one percentage point. Inflation itself fell again in May, and it seems less likely that the Governor of the Bank will have to write a letter to the new Chancellor of the Exchequer at some point this year. Despite this, most forecasters have recently revised up their inflation expectations, while holding their output expectations steady for this year and next.

Given the subdued growth of real wages and personal disposable incomes consumers and especially mortgage-payers are beginning to feel the pinch from the recent interest rate rises. Upside risks to inflation are beginning to generate downside risks to the real economy, especially retail sales and private consumption. It is likely that the Bank will now pause to wait for fresh evidence, having acted promptly and purposefully since April."

Like-for-Like v Total Sales

The 'like-for-like' figure shows how much consumers are spending on a comparable basis, in the same stores year on year. It strips out the effect of expansions, new shop openings and closures on retailer's sales or profits. It is this figure that is looked at by the city and analysts as an accurate and comprehensive measure of the industry's performance, as it removes any increase in retail floorspace. The 'total' figure, which incorporates these increases, is not a true reflection of retail spend, but merely a reflection of industry growth. The like-for-like figure also monitors the increase or decrease at stores that have been open for at least one year.

---

Press releases, papers and documents published on this page are the intellectual property of an organisation unrelated to Central Lobby. We promote their parliamentary and political campaigning activities as they are subscribers to the Central Lobby service.

As such, Central Lobby does not edit, endorse, or attempt to balance the opinions expressed on this page. The content of press releases and other such types of content are the responsibility of the originating organisation.