The latest CBI retail survey shows sales volumes falling at their fastest rate since the report began. The consumer has been spooked into paying off debt at the expense of spending in the shops. It is unlikely to get better soon.
The gloom in the sector is darkening by the day as 50% of those surveyed reported lower sales in September than a year ago. Only 26% report an increase and the resultant balance of 24% is the worst figure in 22 years.
Several retailers have already collapsed completely e.g. Pilot Clothing, Allders Department store, clothing chain Ciro Citterio, which has a Brighton branch in North Street, Furnitureland and, a few days ago, Allsports.
Others are reporting worrying declines in turnover. House of Fraser reported like-for-like sales 4.3% down on the last six months, which resulted in a £4.4m loss for the six months to July against a £2.9m profit in the same period in 2004. Music and video chain HMV reported a 9.7% drop in sales and bookseller Waterstone’s has seen sales decline by 6.4%. Comet has produced a first half loss of £3.3m with a disastrous 27% fall in profits.
Consumers have been hit by a series of increases in household overheads that have reined in their spending habits. These include not only previous mortgage repayment increases but also rising utility bills and council tax rises.
BUSINESS FORUM COMMENT
For retailers the downturn in consumer spending has occurred at a time when overheads are continuing to head north. Uniform Business Rates (UBR) and utility bills have increased but also, due to a rent review system that responds slowly (if at all) to changing economic circumstances, rents are still rising by 4% per annum on average. Next month sees a rise in the national minimum wage by nearly 6% to over £5/hour.
Many retailers have purchased far less stock this Christmas so that they will have less to push into the January sales and this will go some way to alleviating the prospect of two poor Christmas trading periods in a row. However, many independents will simply not survive if the downturn continues deep into 2006, which it is widely predicted to do.
With no let-up in sight expect more dire trading results from the multiples and closures from the independents.
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