Retailers slash prices to prop up sales

A smaller-than-expected fall in official retail figures provided scant consolation for retailers today as they embarked on a major round of price cuts in order to prop up sales.

Retail sales declined by 0.1 per cent in October, during a time when consumer confidence was shaken by turmoil in financial markets, the Office for National Statistics (ONS) said.

The figures were contrary to analyst expectations - many of whom had predicted a 0.9 per cent fall - and recent British Retail Consortium (BRC) research.

The BRC said the figures failed "to convey how tough conditions are for customers and retailers".

Stephen Robertson, director general of the BRC, said: "Given customers and retailers are being squeezed by a whole range of costs and consumer confidence at record lows, few retailers are telling me consumers are spending more."

He added: "The boss of a leading retailer told me things haven't been this bad since the early 1990s."

Sales fell 0.5 per cent in September, a decline that was also better than expected.

But analysts said the detail of today's release continued to cause alarm, with non-essential spending on items such as clothing and household goods particularly hard hit.

Against the previous month, the value of food sales rose by 1 per cent, but in the non-food sector total sales values were down 1.2 per cent, with household goods down 2.9 per cent and textile, clothing and footwear showing a decline of 1.8 per cent.

This suggests firms reduced prices in an attempt to boost sales.

Vicky Redwood, at Capital Economics, said household goods and clothing had "nosedived".

"What's more, anecdotal evidence suggests that the past couple of weeks have been even more shocking for retailers, as illustrated by the rash of price discounting announced this week," she said.

Sales were launched at major retailers across the high street this week as shops tried to tempt customers to spend in the run up to Christmas, which should be their busiest period.

Marks & Spencer today cut prices by 20 per cent in its clothing and homewares departments in its biggest one-day promotion for four years.

M&S spokeswoman Clare Wilkes said: "M&S customers are telling us they are feeling the pinch more than ever and they need some support to help make Christmas extra special."

Asked about speculation that the event would dilute sales leading up to Christmas, she said: "These are really unusual times and it's a very volatile and competitive environment and we need to trade through it.

"We need to compete for every share of the pound that is available to be spent."

Retail giants Debenhams and Bhs were also discounting stock this week and a raft of retailers including Gap, Oasis and Warehouse issued "secret sale" and "friends and family" vouchers.

Debenhams said the sector was facing "the worst Christmas we have ever had".

Ms Redwood said falling inflation and interest rates would provide some relief to household budgets.

"But with unemployment rising sharply, house prices falling and credit becoming less available, we think that spending has much further to fall," she said.

"It's shaping up to be a pretty awful Christmas for retailers."

But Mr Robertson said there could be a silver lining for the astute shopper.

"This is a great time to pick up a bargain for Christmas," he said.

He said the ONS figures - showing October's total sales values up 3.2 per cent on a year ago - were "in stark contrast" to the 0.1 per cent fall shown by the BRC's research.

Retail sales grew at an annual rate of 1.9 per cent compared with 1.7 per cent in September, according to the ONS.

In the three months to October, non-food store sales volumes increased by 2.5 per cent, the lowest growth since April 2006.

There were falls in non-specialist shops, such as department stores, while the decline in household goods sales was the largest since November 2005.

Howard Archer, of IHS Global Insight, said the ONS figures appeared to understate the downturn in consumer spending given the survey evidence from the BRC, the CBI and reports from most retailers.

"Retailers will be desperately hoping that the recent slashing of interest rates from 4.50 per cent to 3 per cent by the Bank of England, the prospect of another large interest rate cut in December and the apparent imminent announcement of tax cuts by the Government will give a significant boost to sales over the vital Christmas shopping period," he said.

But he added that the festive season would be "very difficult" and "life looks likely to remain tough for some considerable time thereafter".

Downing Street today said that the latest batch of figures underlined the need for the Government to take action to bolster the economy, with a package of tax cuts and increased borrowing to be announced in the Pre-Budget Report (PBR) on Monday.