Retail: Rain stops sales

With consumer confidence already weakened by interest rate rises, a month of shocking weather has driven shoppers off the high street and out of pubs and restaurants. By Karen Attwood

The country has experienced the worst summer weather in years with the sun barely showing its face in June. Floods have submerged town centres, the downpours turned the Glastonbury Festival into a mudbath and may mean the Wimbledon tennis tournament will have to run into a third week. Now it's big business's turn to take a hit. The brewing giant Scottish & Newcastle became the first FTSE 100 company to blame the rain for a slump in sales yesterday.

The UK's biggest brewer, which makes Foster's, Kronenbourg and John Smith's, said the total UK beer market declined by 5 per cent in the first half, "accentuated by poor weather". It warned profits for the six months to June will be unfavourable compared to the same period last year, which was helped by hot weather and the World Cup tournament, prompting football parties and booming beer sales.

On the high street, fashion retailers have been the worst hit by the soggy June as the lack of sunshine has meant consumers have delayed splashing out on a new summer wardrobe and have instead dug out their raincoats and umbrellas.

Stores have had to slash prices and bring sales forward to ensure footfall. Some executives privately admit June is one of the worst months they can remember after shoppers shied away from sodden high streets. Malls, such as the Meadowhall centre in Sheffield, which was closed for a week after storms ravaged Yorkshire, have not escaped unscathed.

It is even thought the awful weather may have played a role in persuading the two last remaining bidders for New Look to pull out. Its owners Apax and Permira have put a price tag of up to £2bn on the high-street chain, but recent terrorist incidents and the downturn in fashion retailing due to the weather may have made the potential private equity buyers take fright.

Meanwhile, figures from Nationwide building society published today revealed that consumer confidence fell for the first time in six months in June, reversing a rise in confidence recorded in May. Economists believe the Bank of England will raise interest rates to 5.75 per cent tomorrow. This would be the fifth hike since August last year, putting pressure on "big ticket" retailers, such as furniture and electrical goods companies.

Fionnuala Earley, the chief economist at Nationwide, said the fall in confidence in June reflects weakening sentiment about the economy and jobs. "Higher interest rates are likely to be a major factor behind this as consumers recognise their impact on the wider economy as well as on their own pockets," she said.

Nick Gladding, senior retail analyst at Verdict Research, said the impact of rate rises will be felt most by home improvement, furniture and electrical retailers. When consumers have to tighten their belts, it is the larger, luxury, items they tend to forego first.

Last week, the CBI said that high-street sales in June eased to the slowest rate of growth since November, while clothing retailers had the toughest time in two years. The British Retail Consortium is set to unveil its June figures next week and analysts are expecting them to show a further weakening in sales growth.

A BRC spokesman said weaker figures are expected due to "the continuing effects of interest rate rises, and also the weather, which has been wetter and colder than retailers would have expected".

The recent attempted terrorist attacks in London and Glasgow could also affect shopper numbers and deter overseas visitors, leading to yet more misery for retailers.

However, it is not all doom and gloom. Nick Bubb, retail analyst at Pali International, said the high-street chains HMV and WH Smith "rather enjoyed June".

"When it is wet, people buy more DVDs and books to read indoors," he said. Outdoor specialists such as Blacks Leisure will have also fared better in June, given that it is festival season and campers have had to stock up on wet-weather gear.

The department store John Lewis bucked the trend, with strong sales of household goods offsetting weaker fashion sales, Mr Bubb said. However, Debenhams, which has more of an emphasis on fashion, has been more affected by the weather, he added.

Richard Ratner, at Seymour Pierce, said although big-ticket retailers had had a difficult month, there had been a transfer of spending to home, helping John Lewis. "Upmarket furniture seems to have done better," he said.

Young fashion retailers, such as H&M, Zara and Top Shop, benefited from the sunny spring weather, but were taken by surprise in June. Mr Ratner said weather is generally the key factor affecting clothing retailers, rather than higher interest rates. Given that "fast fashion" is so cheap, it is not the first item to succumb to the pinch in consumer spending. Fashion is affected far more by the seasons, bringing with it new ranges which in turn are driven by weather expectations.

Marks & Spencer's chief executive, Stuart Rose, dismissed fears about the effects of a hot summer last year with the words "weather is for wimps". However, he may wish to take that back next week, when the retailer updates the market. The City is anxiously awaiting M&S's first-quarter trading figures, with many predicting weaker sales on the back of the endless rain. One analyst said M&S had "been walking around the City being quite negative".

Mr Bubb agreed M&S has had a difficult month, in part hit by poor fashion sales, but also due to less people stocking up on barbecue food.

Mr Gladding added the weather has been bad news for all the grocers "who are depending on barbecue sales". Food retailers have "underperformed quite sharply" over the past two weeks, one analyst said.

However, Mr Gladding said retailers liked to use the weather to hide a poor performance. "Certainly, it has hit the fashion retailers hard, but then British weather is always variable," he said.

Losers and winners from June's bad weather

M&S

Clothing retailers have been the worst hit by the bad weather, but M&S has also suffered due to lower sales of barbecue and summer party foods.

HOMEBASE

DIY retailers have taken a hit on the back of slowing consumer spending as shoppers tighten their belts following four interest rate rises since August.

TESCO

The UK's biggest supermarket disappointed the market with a slowdown in first-quarter UK sales. It said recent rate hikes would hit consumer spending.

JOHN LEWIS

Bucking a downturn in big-ticket items, home sales, including electrical and furniture items, at John Lewis have offset weaker fashion sales.

CARPHONE WAREHOUSE

Upbeat trading figures from the mobile phone retailer last month indicated a strong start to the year.

WH SMITH

The high-street chain is relatively resilient to economic and weather-related factors, but rainy days may have encouraged the sale of more books.