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News - 28 April 2005
Where did they all go?

Consumer spending picture darkens

Kingfisher, owner of B&Q DIY stores reported a six percent drop in sales in the first quarter of 2005. They put it down to the election but few people are buying that.

They blame reduced housing market activity on the imminent general election but few serious commentators can see the link and conclude that the effect is far more likely to be the result of consumer concern over debt levels and interest rates.

The largest estate agent chain in the country – Countrywide – reported that housing sales in the same quarter were running 30% down on 2004 figures.

Yesterday’s results from Kingfisher also coincided with news that court orders against mortgage defaulters had increased by 20% in the same quarter and applications to repossess homes has risen to a 10 year high. The rise has to be put into context. In 1991 there were 76,000 repossessions while in 2004 there were just 6,000 but the upward trend is an indication that interest rates are having an effect.

According to Capital Economics - a forecasting firm - consumer spending will rise by 1.5% in 2005 compared to 3.3% last year and real retail sales growth will halve to 2.9% from 5.4% in 2004. They predict that the big losers will be housing related sectors (white goods, furniture etc), car sales and DIY.

BUSINESS FORUM COMMENT

In Brighton & Hove the retail climate remains tough and getting tougher. Five restaurant chain Time went into receivership earlier in the week and multiple complaints from restaurateurs of soft trade would indicate that consumer belt tightening has spread to the restaurant sector.

An interesting feature of the retail sector at the moment is that one or two retailers are bucking the trend. In the same week that Kingfisher reported dire results The Body Shop demonstrated sparkling form. The winners are far outnumbered by the losers but it shows that having the right formula is key to survival, as is being responsive to consumer price sensitivity and running an operation that is lean and trim.


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