Rates and rain hit high street retailers

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The Independent Online

Rising interest rates and June downpours played havoc with high street sales in the second quarter, with clothing, food and drink and DIY retailers among the hardest hit.

However, department stores benefited from the rainfall last month as consumers went bargain shopping for homewares and textiles in early clearance sales. The constant rain has led to many retailers bringing sales forward, which is expected to affect margins later in the year.

Figures from the British Retail Consortium published today revealed that like-for-like UK retail sales grew at 2.5 per cent in the second quarter to the end of June, down from growth of 3.5 per cent in the first quarter. In June, high street sales growth averaged 3 per cent, compared with a rise of 2.3 per cent for the same month last year. This is also ahead of the 1.8 per cent rise in May.

The BRC said the figures were distorted due to the exceptionally hot weather last June, followed by unseasonably bad weather this year, coupled with the comparatives during last year's World Cup football tournament, when the nation rushed out to buy flatscreen televisions and stocked up on beer and food for parties at home.

Kevin Hawkins, director general of the BRC, said the data masks wide disparities between product categories. He added that higher-than-expected overall growth has been achieved by heavy discounting of non-food goods, which has tempted consumers to bring forward major purchases in anticipation of more rate rises. The Bank of England raised rates to 5.75 per cent last week to combat inflation, putting further pressure on households. The wet weather has added to inflation fears by fuelling a rise in vegetable prices.

Marks & Spencer will be the first of the clothing retailers to update the City on its wet weather performance today when it releases first-quarter sales figures covering 1 April to the end of June.

Analysts are predicting M&S to report its worst sales figures in two years, with underlying growth in food and non-food slowing due to the June rains and a general slowdown in consumer spending. Like-for-like sales growth is expected to be 1 per cent or less for non-food and around 3 per cent for food.

The retailer is also at the centre of speculation surrounding the fashion designer George Davies, who is responsible for the company's popular Per Una collection and who is credited with reviving the fortunes of the retailer's fashion lines. Mr Davies is understood to be considering stepping down, although the timing of the news leaking out just ahead of first-quarter figures has raised eyebrows in the City.

The BRC said food and drink showed its weakest growth since last August with barbecue foods, salads and fruits the worst performers. Clothing improved from a poor May but this reflected widespread clearance discounts.

"Summer ranges struggled in the cold and wet and core essentials often sold better than fashion ranges, though top-end designerwear and accessories remained popular," the BRC said. The torrential downpours hit gardening and outdoor DIY hard, it added.

Helen Dickinson, head of retail at the consultancy KPMG, said that these may appear a slightly surprising set of results, but added that "although encouraging at the sales level, the impact of the high discounting on margins will be felt as the year progresses".

Separate figures released by the New West End company yesterday revealed that despite the relentless rain, the West End enjoyed a strong month in June, with average weekly footfall figures up 6 per cent on the previous month and up 4.9 per cent on the year.

Jace Tyrrell, of New West End, said that some 50 per cent of its shoppers are international, with a further 25 per cent travelling into the West End from outside London, which means that bad weather impacts less on retail footfall than other areas.