Economic slowdown hits home at John Lewis with fall in sales

Sales at John Lewis took a hit last week, providing further evidence of a slowdown on the high street as consumers tighten their belts.

The department store chain, which is operated as a partnership and owned by its staff, appeared fairly resilient towards the end of 2007 and enjoyed a record Christmas.

However, the company has got off to a slow start this year and reported a 1.4 per cent fall in sales for the week to 8 March. This compares to a 6.1 per cent rise in the same week last year. Although sales rose the preceding week, in the week to 16 February sales fell 3.4 per cent.

John Lewis's figures were released a day after Terry Dudd, the chief executive of Home Retail, which owns Argos and the DIY chain Homebase, warned of tougher times ahead and said recent cuts in interest rates had had little impact on sales.

Howard Archer, chief economist at Global Insight, said the latest figures from John Lewis "reinforce suspicions that the UK consumer will rein in his spending significantly over the coming months".

"It is obviously dangerous to read too much into one week's figures for one chain, and John Lewis highlighted that sales in the latest week could well have been held back by a number of factors," he said. "Nevertheless, the John Lewis department store sales are generally seen as a good bellwether for the health of consumer spending and they have shown clear overall signs of softening in recent weeks."

He added: "Significantly, John Lewis indicated that sales of furniture and floor coverings are suffering in particular. A weakening housing market not only weighs down on consumer spending through softer prices having an adverse wealth effect, but also through reduced housing market activity diluting demand for home furnishings and appliances."

Eric Gregory, personnel director at John Lewis, said it had been a difficult week for comparisons due to Mother's Day falling on the Sunday, the unseasonable weather and a raft of sporting events on the Saturday, including the Six Nations rugby and FA Cup football.

"While trade was up overall for the other six days combined, it was not enough to compensate for the shortfall on Sunday and as a result we ended the week slightly down on last year," he said. However, he added that although fashion was ahead of last year with strong sales in womenswear driving growth, "the general economic slowdown, particularly that in the housing market, continues to test our home merchandise sales of furniture and floor coverings".

Overall, sales grew 3.2 per cent at the John Lewis Partnership, as its 187-strong supermarket chain Waitrose continued to perform well.

Last week, John Lewis staff celebrated the award of one-fifth of their salary as an annual bonus after the partnership reported an 18.7 per cent rise in profits for 2007. However, the group warned its stores face challenging conditions for the rest of this year.