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Dramatic downturn in consumer spending

Published:  01 September, 2010

Retail sales growth slowed dramatically in July according to the BRC/KPMG Retail Sales Monitor.

Retail sales growth slowed dramatically in July according to the BRC/KPMG Retail Sales Monitor.

UK retail sales values rose 0.5 per cent on a like-for-like basis from July 2009, when sales had increased 1.8 per cent. On a total basis, sales were up 2.6 per cent against a 3.6 per cent increase in July 2009.

Food sales growth picked up, though the growth was flattered by a smaller gain a year ago. Clothing sales growth was boosted by clearance deals but footwear was more difficult. Homewares fell back, with big-ticket items in particular hit by consumer uncertainty over job cuts and income prospects.

Non-food non-store sales (internet, mail-order and phone sales) slowed in July and were 11.3 per cent higher than a year ago, the weakest growth for almost a year.

British Retail Consortium director general, Stephen Robertson, said: “These are poor results for non-food retailing, with some sectors actually seeing sales falls. The vitality has even faded from online sales growth. By contrast food sales continue to be resilient.

“The benefit from sunny weather receded as it turned cooler and wetter in parts of the country, while the World Cup boost ended. But the overriding factor is consumer confidence – it’s fallen recently, though people are still more confident than this time last year.

“Talk of public spending cuts is unsettling customers and they are concentrating on essentials. It’s clear the recovery continues to need support. The Bank of England must resist pressure to increase interest rates too soon.”

And Helen Dickinson, head of retail at KPMG, said: “A small month-on-month increase in food prices is driving some of the growth seen in retail sales this month. So, once again it’s the non-food sector which is finding the environment particularly challenging. A jittery housing market and warm weather drove home-related sectors into negative like-for-like territory.

“On the positive side, men’s clothing had a good month. Summer sales, some of which started earlier this year, did little to entice consumers back in any decisive way as confidence has been affected by concerns over the future impact of fiscal changes – but spending at least continues to hold up and is likely to continue to do so, at least until the effects of Government measures begin to hit people’s pockets.”

Clothing sales picked up after showing only marginal growth in June, but the stronger growth was against a decline in July 2009 when very wet weather hit sales. The improvement was led by adults’ clothing, while growth in childrenswear remained weaker than earlier in the year.

Clearance events and promotions drove sales for many, but often at the expense of margins. Uncertainty about jobs and incomes made people cautious, especially when they had already bought summer clothes in May and June’s hot weather. But clearance discounts did attract customers looking for good deals.

Overall footwear sales growth slowed further, to its weakest since last August. Both men’s and children’s fell below their year-earlier level, for the first time since August 2009. But women’s continued to show a modest gain.

After the World Cup boost, TV sales slowed markedly, with larger screens suffering the most. Consumers’ uncertainty about jobs and income prospects continued to hit trade.