Consumer confidence crisis as pre-Christmas sales slump

First published in Business: Shares The Northern Echo: Photograph of the Author by , Deputy Business Editor

ACCORDING to official figures, recession is behind us, but it seems that the average UK consumer may take a little more persuasion than the gospel according to the Office of National Statistics to part with their hard earned cash.

Today (November 6), the British Retail Consortium said, October's UK retail sales, down 0.1 per cent year on year, were the worst outside a seasonal period for 11 months, ending hopes that September’s more buoyant results would spark a retail revival in the run up to Christmas.

Online sales did not escape the slump, with the British Retail Consortium pronouncing that the last three months include the two weakest growth rates of the four years.

In the wake of the collapse of electrical firm Comet, the figures will undoubtedly raise the blood pressure of retail executives, particularly as analysts have interpreted the figures as suggesting consumers are holding off on making major purchases and limiting spending to essential items only, as disposable incomes are squeezed.

Clothing and footwear sales saw double-digit like-for-like growth in the first week of the month as customers bought autumn and winter collections, but faded Stephen Robertson, director general of the British Retail Consortium, said it looked like the modest sales revival seen in September was something of a "false dawn".

"The disappointing figures are a reminder of the difficult economic realities many are still facing.” He said. “Falling consumer confidence means people are limiting spending to essential items and are cautious about committing to big-ticket and discretionary buying.

"The recession may be officially over, but it will take a little longer for consumers to feel they can spend freely again. Retailers are holding less stock than a year ago and may choose to be cautious with pre-Christmas sales in order to protect margins."

The general retail trend was echoed by Marks & Spencer, who reported falling half-year profits today as it counted the cost of its worst non-food sales performance for three years.

The retail giant posted a fall in underlying pre-tax profits to £297m from £307m a year earlier after admitting to mistakes in its core womenswear range.

Under-pressure chief executive Marc Bolland offered signs of a turnaround since then, reporting a better-than-feared 1.8 per cent fall in like-for-like non-food sales in the second quarter - a marked improvement on the 6.8 per cent slide seen in the first three months, which marked its worst performance since December 2008.

Marks said it had taken "decisive action" by improving buying and merchandising, while also overhauling its general merchandise team and hiring new managers - including tasking former Debenhams and Jaeger boss Belinda Earl with revitalising womenswear in the newly-created role of style director.

But the group admitted customers would start to see the benefits of its management reshuffle only from next summer.

It was a completely different story at Primark, which has continued to resist Europe's economic woes after an "exceptional" year in which it racked up £3.5bn in sales and created 10,000 new jobs.

The budget chain, which has 158 of its 244 stores in the UK, grew operating profits by 15 per cent to £356m in the year to September 15, parent company Associated British Foods said today.

Primark's like-for-like sales were 3 per cent higher, with UK trading "particularly strong" in the summer and Europe still buoyant despite tough economic conditions in three of its markets in Ireland, Spain and Portugal.

Nineteen new stores were opened in the year and a further 12 stores will have opened in time for Christmas, including a second store in Austria, while Primark plans to complete the expansion of its city centre stores in Manchester and Newcastle by the spring.

The business, which has doubled annual sales in the past five years, employs more than 43,000 people.

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