August 01 2008

Latest sales stats: Both retailer and consumer confidence levels hit all-time low

Hardly a moment has gone by this week without the announcement of yet another set of gloomy retail sales figures and forecasts. The only highlight? Fewer retailers are actually going bust — for now...

Figures from the CBI, GfK NOP, Deloitte and a raft of individual retailers including Next, Woolworth, Carphone Warehouse, Greggs, Travis Perkins and Topps Tiles all added up to the almost inescapable conclusion this week that the credit crunch is fast turning into a spending freeze. Only Deloitte was able to shed any positive light on the industry.

From the CBI came the news that sales volumes fell sharply — again — in July, with August's outlook remaining bleak. 61% of respondents to the CBI's Distributive Trades Survey said that sales in the first half of July were lower than a year ago. Grocers — including supermarkets — and footwear & leather retailers were the only sectors to report year-on-year sales growth.

The CBI survey reported:

• The resulting balance of -36% was the weakest since the survey began in 1983, and confounded expectations of a gentler decline (-7%).
• A similar fall in sales volumes is expected in August (-32%)
• Sales for the time of year were reported as poor by a balance of 46% of firms, which was worse than expected (-17%), and similarly poor sales are predicted in August (-37%).
• Demand for big-ticket items was especially weak, with every respondent selling durable household goods and furniture & carpets reporting that sales were down on a year ago.

"It is turning out to be a very grim summer for many retailers", concluded Andy Clarke, chairman of the CBI Distributive Trades Panel and retail director of Asda."The retail sector will have to focus more than ever on providing good value to customers if they want to keep the sun shining this summer."

The July GfK NOP Consumer Confidence Index has also dropped to an all time low. "The Index score has dropped again this month and is now at its lowest level since the survey began in 1974", explained GfK NOP's Donna Culverwell. "At -39, this is 4 points lower than in March 1990 when the UK was heading into the grip of the last recession."

A second GfK NOP consumer survey in July, this time for its Consumer Behaviour Monitor, found that:

• 42% have changed to buying supermarket own brands rather than branded goods
• 28% have switched to a discount supermarket
• 41% are going out to pubs or restaurants less
• 38% have cut back on the amount of holiday travel they plan to do
• 50% of drivers have reduced the number of journeys they make by car
• 21% of drivers are using public transport more, rather than travel by car

Deloitte, on the other hand, has released some rather more positive figures in terms of the number of retailers in administration. "Contrary to expectations, the latest retail administration figures show that there has been a drop of 16% in quarter two compared with the previous quarter and a staggering 30% drop in retail administrations for the first half of 2008 compared with the same period in 2007," Lee Manning, reorganisation services partner at Deloitte explained.

Fashion retailers are not included in this positive situation, however. "We are starting to see the effects of the credit crunch: there has been a 28% increase in administrations in this sector this year," Manning continued.

And the outlook for all retailers is poor. Manning explains:

"It is important to note that the administration figures are generally skewed towards smaller businesses, as larger businesses are better suited to being restructured, because of their greater scale and financing models.

If, as we are now seeing, the larger retailers are feeling the pinch, their smaller counterparts will also be suffering and may struggle to survive if the present economic environment persists.

In particular, we would expect furniture and household related retailers to experience an increase in failures next quarter."

What should you do? Here, the advice is ages old. "Retailers that are able to both react quickly to the market by adapting their offerings to changing customer needs while encumbering as little cost as possible will be able to both survive and achieve business success,” says Richard Hyman, strategic adviser to Deloitte.

by Sarah Clark (Web Editor)