Retailers counting on rush to beat VAT rise as sales fall short of hopes

Published on Monday 7 December 2009 21:39

RETAILERS are on tenterhooks in the run-up to Christmas as figures published today show a smaller-than-expected rise in retail sales during November.

Shopkeepers are now hoping that customers will be lured to the high street before value added tax returns to 17.5 per cent on 1 January.

Last month's 1.8 per cent rise in retail sales lagged behind October's 3.8 per cent jump – the best October since 2002 – and missed analysts' expectations for a 4 per cent increase.

But November's figure from the British Retail Consortium (BRC) was still better than at this stage last year, when sales fell by 2.6 per cent as the banking crisis crippled consumer confidence.

Richard Dodds, of the Scottish Retail Consortium, said it would be "a mistake" for Chancellor Alistair Darling to raise VAT past 17.5 per cent in tomorrow's Pre-Budget Report or in the months ahead.

He said such a move would damage consumer confidence before the recovery had taken hold.

Dodds also called on the UK government to scrap its plan to increase employers' national insurance contributions in April 2011, branding the move a "tax on jobs" that would hinder retailers.

He added: "What we need from politicians – both now and beyond the election, regardless of who wins – is for consumer confidence to be encouraged and built upon rather than undermined before recovery has been firmly established."

The BRC is awaiting the results of a UK government consultation over whether retailers should be given four weeks instead of the usual two to reprice products on shelves and reprogramme tills following the VAT increase.

With only 16 shopping days left to Christmas, Stephen Robertson, the BRC director-general, said consumer confidence is "fragile and has taken a turn for the worse".

"We're the only major economy still in recession," he said. "Uncertainty over jobs and future tax increases and UK government spending cuts is making customers more cautious.

"Retailers are hopeful of a better Christmas than last year's dire performance, but it's still all to play for."

November sales were expected to have been stronger because of the comparison to the second worst month in 2008.

But Robertson said the figure was not as bad as it first appeared, as a sharp decline in food inflation fuelled much of the sales drag.

The unseasonably mild weather had a significant effect on shoppers' buying habits.

Clothing fell back below its already weak levels last year despite discounting and some special sales days. Womenswear was slightly down on the previous November and menswear suffered its worst year-on-year fall since May 2008 as warmer weather hit demand for winter coats and knitwear. Meanwhile, the very wet weather helped an uplift in demand for boots.

Overall, non-food sales improved as the festive shopping season got under way, with furniture and floor coverings among the items doing well.

WHAT'S FILLING SANTA'S SLEIGH?

AMONG the big sellers so far this Christmas are the video game Call of Duty: Modern Warfare 2 and Susan Boyle's debut album, according to the British Retail Consortium.

Hardback non-fiction books – such as celebrity autobiographies and cook books – were selling well but the broader book market is suffering.

Sales of fitted kitchens, upholstery and beds are all up on last November, the BRC said, helped by promises of delivery in time for Christmas.

Richard Dodds, from the Scottish Retail Consortium, said: "There's an increased willingness for people to buy things like furniture, homeware and big electrics, which people were extremely reluctant to make 12 months ago."