Fears grow for retailers after August sales fall

Clothing and footwear retailers suffer weak sales but grocers remain buoyant

Retail sales slipped back in August after two months of robust growth, sparking fears over the strength of a recovery in consumer spending. Underlying retail sales fell by a worse than expected 0.1 per cent last month, after a rise of 1.8 per cent in July and 1.4 per cent in June, the British Retail Consortium-KPMG Sales Retail Monitor revealed. Total sales rose by 2.2 per cent in August, but this was lower than the 3.6 per cent growth in July.

The decline in sales will worry retailers facing the crucial final quarter of the year – which they rely heavily upon for their annual profits – as UK plc strives to drag itself out of recession. Consumer spending accounts for 65 per cent of gross domestic product.

Stephen Robertson, the director general of the BRC, said: "The stronger figures of June and July haven't been sustained. It's clear the deceptively good sales growth of those months was due to summer sun and price cuts – not any major revival in how customers are feeling. What spending we now have is all about value and essentials."

Despite falling inflation, grocers saw food sales growth slightly ahead of July, but sales at clothing and footwear retailers tumbled back below the level of last year after two months of growth. Mr Robertson said: "People are holding off buying autumn and winter clothing until they actually need it."

Joanne Denney-Finch, the chief executive of IGD, the food retailers' trade body, said that grocers had increased promotional activity this summer. She said: "Whether banking on the sunshine with barbecue pack deals or investing in revamped loyalty card schemes, grocers are competing fiercely to provide value for shoppers."

While August's retail sales did not include the bank holiday on the final Monday, in contrast to last year, the same month a year ago was characterised by "very wet weather", the BRC said.

Helen Dickinson, the head of retail at the accountants KPMG, said: "Negative like-for-like sales on the back of the same situation last year is leaving many retailers with some serious challenges around controlling costs and generating cash." Industry experts believe retailers face a tough Christmas, which will be disrupted by VAT returning to 17.5 per cent on 1 January.

Barry Knight, the head of retail at Smith & Williamson, the UK accountancy firm, said: "Everybody has been talking about green shots, but unemployment is rising and there are still huge personal debt levels in this country and we should be prepared to have another disastrous Christmas."

Yesterday, the TUC said the retail sector had been hit the hardest by unemployment in the recession. Between July 2008 and July 2009, there was an increase of 76,230 in sales and retail assistants claiming the dole.