London retail sales tumble to cast doubt on the sector's recovery curve

Debenhams, Next, French Connection, Kingfisher and Dunelm report this week
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London's retailers will today create shockwaves by posting their worst monthly sales for four years, ahead of results this week from some of the UK's biggest store groups that will provide a health check for the high street leading up to the critical Christmas trading period.

The department stores Debenhams and John Lewis, the fashion retailers Next and French Connection, the DIY group Kingfisher, and the furnishings chain Dunelm will all update the market this week. Further August sales data will be unveiled by the Office for National Statistics on Thursday.

The British Retail Consortium said that like-for-like retail sales in Central London plummeted by 5.9 per cent in August – the first month they have fallen this year after seven months of growth, which has hitherto been partly supported by foreign shoppers taking advantage of the weak pound. Retail sales fell by 0.1 per cent outside of the capital, which was the first time they had been ahead of London's this year, although the gap had previously been narrowing, according to the BRC-KPMG Retail Sales Monitor.

Stephen Robertson, the director general of the BRC, said: "These results don't suggest the recovery is underway. This is the lowest London sales growth since August 2005." He added: "Central London footfall saw the biggest drop for over a year and a half. The pound is less weak that it was, eroding London's appeal for overseas visitors. Like domestic shoppers, tourists are also more cautious." The religious event of Ramadan also began in early August this year, in contrast to September last year, which led to Middle Eastern visitors returning home earlier.

However, the data from the UK and London further confirms a slowdown in the retail sector after robust trading in June and July. While strong retailers, including Morrisons, Next and Kingfisher, which owns B&Q, have already posted profit upgrades recently and the worst fears of store groups about 2009 have not materialised, retailers are still nervous about the crucial Christmas trading period, when most make the bulk of their annual profits, particularly given growing unemployment and the rising savings ratio.

But Mr Robertson pointed out that London's retailers were up against a strong August 2008 – the third highest figure last year – when like-for-like sales actually rose by 8.6 per cent. Last month's better weather in the capital after the downpours of 2008 hit footfall as shoppers favoured outdoor leisure activities.

This week, the comments by Charlie Mayfield, the chairman of the John Lewis Partnership, are likely to be given the most scrutiny given that the eponymous department store is seen as a vital barometer of consumer spend. While trading at John Lewis, which posts half-year results on Thursday, has picked up since the first few months of the year, its stablemate Waitrose, the supermarket group, has been powering ahead – delivering marketing-leading sales recently. Tomorrow, Debenhams is expected to post annual pre-tax profits of about £120m, but is expected to say that its fourth-quarter sales have dipped, partly because of the disruption caused by allocating store space away from costly concessions towards its own-bought ranges, say City analysts.

On Thursday, the ONS is expected to say that sales growth slipped in August. Howard Archer, the chief European economist at IHS Global Insight, said: "The fact is that consumers continue to face serious obstacles that are likely to limit spending for some time to come. These notably include sharply higher and rising unemployment, low earnings growth and heightened debt levels."