BETTER WEATHER, BUT NO RELIEF FOR RETAILERS

4th September 2007

• UK retail sales rose 1.8% on a like-for-like basis, compared with August 2006, when sales were up 2.5%.
• The three-month trend rate of growth was unchanged from July, at 2.1% for like-for-like sales, and slipped to 4.0% from 4.1% for total sales, reflecting the continuing growth of retail space.
• Sunnier weekends helped food, clothing and footwear sales to pick up from a poor July, but growth remained weaker than earlier this year. Furniture and homewares fell back after good gains in June and July, which were driven by aggressive discounting in clearance sales. DIY and gardening were broadly unchanged and still weather-dependent.
• Consumer confidence is being hit by interest rate rises. Consumers are cautious about committing to big purchases: heavy discounting is often needed to persuade them to buy.
  

Kevin Hawkins, Director General, BRC comments:

“The arrival of drier, if not warmer, weather has had little effect on retail sales. The squeeze on disposable incomes, reinforced by worries about interest rates, is depressing both retail sales and shop prices. There is no case for another hike in interest rates. The next move should be in the opposite direction.”

Helen Dickinson, Head of Retail, KPMG comments:

"Another disappointing month for many retailers as the slow rate of growth in the industry continues.  If the trend continues into September, we will see the lowest quarterly growth rates since the first quarter of 2006.  However, it wasn't bad news for all as, for the first time in three months, the food and drink sector put in a robust performance.  On the other hand, children's clothing and footwear, which we would have expected to do well given the 'back-to-school' focus, managed only a lacklustre performance.  The heavy competition and price focus in this sector left like-for-like sales in negative territory."

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.

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.