The high streets are feeling the effects of squeezed household budgets amid reports of retail sales remaining stagnant in the last three months to August.
A recent report has revealed that high street sales fell in August at their fastest pace for more than a year. According to the CBI’s ditrbutive trades survey, 14% more retailers reported that business was worse – the most negative reading since May 2010. This survey reinforces data produced by Office of National Statistics that showed retail sales volumes fell by 0.2% in July.
The CBI revealed the pessimism business owners are feeling, with 8% more retailers expecting conditions to worsen rather than improve. 22% more retailers have cut the volume of orders placed with suppliers, which reflects the terrible conditions facing the retail industry. The British Retail Consortium revealed that one in ten shops in the UK is empty as a result of lack of spending, as families have endured the sharpest fall in spending power in 34 years.
George Buckley, economist at Deutsche Bank, said the survey results were understandable given weak consumer confidence and the contraction in real wages. But he said the situation "could have been worse", noting that headline reading is far better than in late 2008 when the recession was "just getting underway."
While consumers are spending less, wholesale retailers and suppliers have suffered significantly, as even the largest retail chains have been struggling in the past year; Fashion chain Jane Norman, interior designer Habitat and wine merchant Oddbins have all gone into administration this year, while Mothercare, HMV and chocolatier Thorntons have announced store closures.
In the same spirit, large supermarkets have been downgraded by Citigroup, amid concerns the UK’s consumer economy is worsening. This follows Deutsche bank’s downgrading of many large retailers previously.
J Sainsbury has been cut from a Hold to a Sell, with its price target slashed from 350p to 280p; Tesco’s target price has been cut from 385p to 330p, and the broker reiterated its Sell stance.
However, retailers in more dynamic centres in the UK are performing better with less than 2% of shops empty on some high streets in places like Bromley and Greater London. Morrisons is also bucking the trend of their competitors and attracting an extra 400,000 shoppers a week, lifting its profits 8% to £442m. What is clear is that as demand increases, having access to sufficient working capital is imperative in ensuring businesses along the supply chain to the high street can successfully rise out of the summer’s spending drought.
- “Fresh recovery fears as retail sales stall”, The Telegraph
- “One in ten shops stands empty”, The Telegraph
- “Citigroup downgrades UK supermarkets”, The Telegraph
- “Retailers find high street sales falling fast”, The Financial Times
- “High street sales sluggish in July”, The Financial Times
- “Morrisons sales rise as consumers seek bargains”, The Guardian