Shops fear for Christmas trade as sales slip again

(REUTERS)

High street sales fell unexpectedly last month, reinforcing fears that shoppers are already reining in their spending ahead of the economically crucial festive period. It was the second consecutive monthly sales decline, with clothing and footwear stores suffering the most.

The Office for National Statistics said total sales volumes fell by 0.2 per cent between August and September, against a 0.3 per cent rise forecast by economists. The last consecutive fall was in December and January.

The data, which included a downward revision to a 0.7 per cent sales fall in August, fuelled concerns that the recovery in retail spending – which has held up better than expected for most of this year – is running out of steam.

Malcolm Pinkerton, a senior analyst at the retail consultancy Verdict, said: "The retail sales figures from the ONS show the longest sustained fall in sales since the turn of the year. This continued poor performance lends support to broadening evidence of weakening consumer activity."

This week, retailers such as Debenhams and Sports Direct have warned of tough trading conditions ahead. Economists expect households to further tighten their purse strings once the austerity measures unveiled in Wednesday's Comprehensive Spending Review take effect.

Industry experts also expressed surprise that shoppers do not yet seem to be bringing forward purchases before VAT rises to 20 per cent on 4 January. Richard Lowe, the head of retail and wholesale at Barclays, said: "A period of uncertainty lies ahead as households and businesses digest the details of the spending review. Retailers will be hoping to benefit from the traditional seasonal uplift and the anticipation that consumers will bring purchases forward ahead of the VAT increase – although there is little evidence to support this theory yet."

Between August and September, sales volumes at clothing, textile and footwear shops tumbled by 0.8 per cent, although they rose at other chains selling mainly general merchandise.

Grocery and predominantly non-food stores increased their sales by 0.1 per cent. Furthermore, the annualised sales data provided further rays of hope for retailers. Total sales volumes in September were up 0.5 per cent compared with the same month last year. Excluding petrol, sales by value jumped by 3.3 per cent on an annual basis, which suggests retailers are having success at pushing through price increases.

Overall, however, the ONS data largely supports the latest survey by the British Retail Consortium and KPMG. Like-for-like retail sales at stores open for at least a year rose by 0.5 per cent in September, which the BRC-KPMG study described as the "sixth month of poor sales growth".

Despite this, Verdict is forecasting that Christmas will be the best for shopkeepers since 2007. It expects sales to rise by 1.9 per cent to £85.2bn, with consumers spending an extra £1.6bn compared with last year.

Mr Pinkerton said: "Retail is in for a very tough time in the next few years, but at least it has got Christmas to look forward to, with consumers hopefully bringing some festive cheer by having a last hurrah before the belt tightening begins in the new year."