Warning of happy Christmas but grim new year for retail sector

Published on Sunday 15 November 2009 21:14

RETAILERS can expect a stronger Christmas as shoppers predict better times ahead, however new year trading will be "ugly", a leading retail monitoring firm is today predicting.

BDO, the accountancy firm that monitors sales at 10,000 stores, predicts that the average UK retailer will see sales up 3 per cent on the end of 2008.

Don Williams, BDO's head of retail, told The Scotsman that, despite the fact unemployment is still rising, most consumers are more confident about their prospects than last year.

"Last Christmas we were all certainly uncertain," Williams said of a period when the financial crisis was mounting.

"We didn't even know if there was going to be a capitalist structure in a few months, but this Christmas things are better; even if we don't think we've hit the bottom, we certainly think the bottom is pretty close," he added.

BDO is forecasting that retailers will benefit from reduced competition, following the demise of the likes of Woolworths and Zavvi.

Consumers will also be aware of the looming value added tax increase – which returns to 17.5 per cent at the start of January – and will take advantage by spending early.

However, BDO warned that the VAT increase will contribute to an extremely difficult first quarter in 2010.

"My view is that it is going to be ugly at the start of next year," Williams said.

As well as an end to the VAT cut, there is a prospect of further tax increases in 2010 to cover mounting public debt, Williams speculated.

The first quarter would be tougher anyway because, unlike this year, when Easter was in March, in 2010 the holiday, crucial for confectionery sales, falls in the second quarter.

Most major companies are expected to survive the period, Williams said, warning that "small independent stores will bear the brunt" of a battle for consumer spending.

A spokesman for the Scottish Retail Consortium (SRC) said its October figures showed a sharp, 3.8 per cent, rise in like-for-like sales among its members compared to last year, with November and December also expected to be stronger.

He added: "I think most people expect the last three months of this year to be better than last year's terrible performance, when it looked like the financial system was collapsing."

The SRC spokesman warned that there was "a lot of uncertainty" about next year, with a VAT increase, rising unemployment and the prospect of a change in government, all potentially creating consumer caution. BDO is expecting competition to be fierce in the coming weeks, as increasingly canny shoppers wait for pre-Christmas sales before wallets are opened.

"As consumers we're been conditioned by retailers to expect discounts," Williams said.

"I think people will play a bit of a cat-and-mouse game, thinking, if I hold out, eventually someone will lose their nerve and I will get a lot of promotional discounts."

Last year, Marks & Spencer held pre-Christmas sales for the first time in decades, sparking widespread discounting before the traditional Boxing Day sales. Christmas Day in particular is expected to see record online sales, as retailers start discounting to take advantage of increased voucher sales, by starting online price cuts on 25 December.