Hopes of retail spending recovery are dashed

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The Independent Online

The faint hope of retailers for a lasting recovery in consumer spending after the boost from April's balmy weather and bank holidays was dashed yesterday, after the cold reality of falling sales returned in May.

Most non-food chains suffered a fall in sales, laying bare how consumers are restricting their spend on discretionary items, particularly big purchases such as furniture and electricals. After a 5.2 per cent spike in April, like-for-like sales tumbled by 2.1 per cent last month, according to the closely watched British Retail Consortium and KPMG survey.

Stephen Robertson, the director general of the BRC, said: "After two previous months distorted by the later Easter and extra bank holiday, this is a more realistic reflection of how tough conditions on the high street really are."

He added: "The first half of May was better than the second, when the weather turned unseasonably wet and cold in many parts of the country, but customers' fundamental reluctance to spend is now clear to see. Households' disposable incomes continue to be squeezed by uncomfortably high inflation and low wage growth, while uncertainty about the effects of government cuts is hitting consumers' sentiment about future finances."

Total retail sales fell by 0.3 per cent in May – compared with the 6.9 per cent leap the month before – despite a boost from the rise in VAT to 20 per cent from January. While retailers faced tough comparable sales from the build-up to the football World Cup and the sunny weather at the end of May 2010, the latest weekly sales from John Lewis show just how challenging trading conditions are on the high street.

The department store chain, which will be trading ahead of many chains, posted a 0.8 per cent fall in revenues to £55m for the week to 28 May.

Helen Dickinson, the head of retail at KPMG, said: "Across the month, virtually all non-food sectors experienced negative like-for-like sales to varying degrees, reflecting consumer's reticence to spend as the disposable income squeeze tightens its grip. This, combined with falling margins driven by a greater focus on price, lower average transaction values and increasing manufacturing costs is leaving many retailers coping with a 'double whammy' impact on cash flows."

General merchandise retailers, including clothing, footwear, homewares and electricals chains, suffered a marked fall in sales in May. For instance, furniture and floor coverings "dropped back sharply to well below their year-earlier level", the BRC said. It noted that garden furniture slowed after April's heatwave. In fact, most non-food retailers remain deeply concerned about just how much consumers brought forward spending in April.

At the troubled end of the high street, lenders to Jane Norman, the young fashion retailer, have put the chain of 200-plus stores up for sale, although its recent profit and sales data is not public.

What is known is that many retail restructuring specialists are busy treating sickly patients. Administrators have been called in at Officers Club, Oddbins and Focus DIY in the past two months. Similarly, food sales also slowed markedly in May, the BRC found, after the spike driven by the warm weather and bank holidays in April.

Joanne Denney-Finch, the chief executive of IGD, described it as a "difficult month" for the grocery sector without the benefit of the run-up to last year's World Cup.

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