Retail sales stall in August as fear stalks the high street

Profits tumble at John Lewis and French Connection

Britain's high street recovery may be stalling even before the crucial Christmas trading period, official figures suggested yesterday as two of the country's biggest retailers revealed plunging profits.

Retail sales in August were completely flat compared with July, the Office for National Statistics said, confounding City expectations of a rise. There was "no growth" at all in total retail sales volumes, the ONS said, compared with growth of 0.4 per cent in July and 1.2 per cent in June. The British Retail Consortium (BRC) has already posted similar data.

Meanwhile, high street bellwether John Lewis said its profits had more than halved during the first half of the year, while fashion retailer French Connection added to the jitters, warning its losses had widened to £12.8m over the half-year to 31 July.

The weak data compounds the fears of leading retailers that the high street is set to suffer as the state of the public finances hits consumer spending. Earlier this week, Simon Wolfson, the chief executive of Next, warned the retail sector could be in for a tough year with further job losses likely, even if the recession ends, and tax increases on the agenda.

Stephen Robertson, the director general of the BRC, said: "With unemployment rates at a 14-year high and predicted to increase into next year, most people are still very cautious about spending on expensive items – unless there are sufficient discounts."

The August figures were boosted by the grocers, which grew sales volumes by 0.7 per cent, but non-food stores continued to find life tough and sales fell by 0.6 per cent, the ONS said.

Tarlok Teji, the UK head of retail at Deloitte, the accountancy firm, said: "The supermarkets have done well as consumers have gravitated towards them for their food essentials, but also for their non-food offering."

That trend was reflected at the John Lewis Partnership (JLP), which also owns the grocer Waitrose. The department store chain posted operating profits down by 50.9 per cent to £20.9m. Its home department suffered an 8.1 per cent fall in sales, as the dire housing market hit sales of white goods, electricals, homewares and furniture.

Charlie Mayfield, the chairman of JLP, said: "The number of people moving house since the beginning of 2008 has halved and then halved again, and is now back to 1978 levels."

However, Waitrose – the UK's fastest-growing supermarket – delivered record half-year operating profits of £121.1m, boosted by store openings and a 1.8 per cent rise in like-for-like sales, excluding petrol. The grocer has generated big sales from its Essential Waitrose value range, launched in March. Overall, JLP's pre-tax profits fell by 19.6 per cent to £86.3m.

French Connection said it had closed its five stores and concessions in Denmark and Sweden after posting widening losses of £12.8m, from £5.4m the year before, for the six months to 31 July. It has also cut 50 staff at its offices in London, New York and Hong Kong. But its like-for-like sales – which strip out the impact of new space – rose by 2 per cent in Europe, driven by a robust womenswear performance.

While 2009 has not been the disaster that store groups had expected, rising joblessness – and the fear of it – continues to restrict spending on big-ticket items. Store groups also fear that the rise in VAT from 1 January could be a further drag.

Mr Mayfield said it was "very difficult" to forecast trading on the high street over the next few months in the run-up to Christmas, but he remained anxious. "We are in for a long, slow and sluggish recovery," he said.