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Business News

Christmas fails to tempt consumers into spending

Even a late rush to the shops will not make up for the poor November sales figures

Retail sales tumbled in November to a six-month low as cash-strapped consumers slashed their spending across the sector, including on the internet, despite Christmas approaching fast.

While the unseasonably warm weather has dealt a hammer blow to sales of winter clothing, a British Retail Consortium/KPMG survey diagnosed that the "the health of UK retail is deteriorating" and that chains were having to resort to "high levels"of discounting to generate sales.

Despite higher prices across the sector, like-for-like sales tumbled 1.6 per cent last month, which was the worst performance since a 2.1 per cent fall in May, according to the Retail Sales Monitor survey.

Total sales growth of just 0.7 per cent, which included the contribution from new stores, was also at a six-month low.

With Christmas Eve falling on a Saturday this year, retailers are hoping for a last-minute spending spree but for many it will come too late and will not compensate for a disappointing "golden quarter", when chains make the bulk of their annual profits.

Helen Dickinson, the head of retail at KPMG, said: "The latest figures prove once more that the health of UK retailing is deteriorating. Christmas is a crucial trading period for the UK retail sector but this year many retailers will be nervous and unsure as to how the season will pan out."

Cash-strapped consumers continue to be reticent and last week's gloomy economic forecast by the Chancellor won't help to boost confidence levels. Any sales are hard won, with high discount and promotion levels."

While non-food, non-store sales – largely online – rose by 8.6 per cent last month, this was the weakest figure since March and less than half the 17.6 per cent rise seen in November 2010.

Stephen Robertson, the director general of the BRC, said: "Internet retailers are offering high-profile discounts and holding special one-day events ahead of Christmas in much the same way as high street traders, hoping to generate an uplift in spending."

On the high street, non-food sales contracted from their year-earlier level. The impact of the mild weather was particularly damaging for retailers of winter clothing and footwear in November, which contrasted with a cold snap in the same month last year.

While these chains were also hit by the general public uncertainty about jobs and household finances, the downbeat macroeconomic picture was felt the most acutely by retailers selling big-ticket homewares and furniture products.

There was also little change from the five-month low in food sales growth witnessed in October.

Ms Dickinson said: "Retailers' performance is suffering because of weak top-line growth and declining margins, making the backdrop even more challenging. December will require some tough decisions for a number of retailers as they struggle to plot a path in such challenging conditions."

A separate survey by PwC found retailers advertising average price discounts of 39 per cent last week, close to the 40 per cent level seen in 2008.