December sales lift the high street but retailers fear January decline

The CBI’s latest distributive trades survey, which spans the first fortnight in December and is a key indicator of high street confidence, showed sales volumes had risen for the first time in seven months.

But analysts warned the year-on-year comparison was flattered by heavy snow at the start of December 2010 and by shops giving heavy discounts, often for as much as 75 per cent, to entice customers through their doors.

Judith McKenna, chair of the CBI’s distributive trades panel and chief financial officer at supermarket chain Asda, said: “Early discounting helped retailers add a little extra sparkle to their sales in December, although the reprieve appears to only be temporary as they don’t expect sales to continue to grow into January.

“Consumers are continuing to hold off on purchasing big ticket items, including durable household goods, preferring to use their hard-earned cash to stock up for Christmas dinner and all-important gifts for the family.”

Chris Williamson, chief economist at consultancy firm Markit, warned: “Retailers expect January sales values to be the weakest since August 2009, perhaps reflecting the fact January sales are in effect already taking place in December in many cases.”

While 41 per cent of shops said sales rose year-on-year, 32 per cent reported a fall, giving a balance of +9 per cent.

This was better than expected, and the first year-on-year sales growth since May, when +18 per cent reported rising volumes.

David Tinsley, UK economist at investment bank BNP Paribas, noted: “The underlying position on retailing looks somewhat better than the most dire predictions but nonetheless the headline in this survey over-eggs the strength of trading.

“What appears to be happening is that aggressive discounting by shops is having the desired impact, but that may come at the expense of a weak January.”

IHS Global Insight chief UK economist Howard Archer agreed, saying: “While much better than feared and – at the risk of coming across as a ‘bah humbug economist’ – it must be noted the December retail sales survey from the CBI is far from buoyant and it fails to mask an underlying worrying picture.

“It is evident that sales have been lifted by heightened discounting and promotions, which will have eaten significantly into many retailers’ margins.

“This reinforces belief that retailers are having to work extra hard to get worried and pressurised retailers to part with their cash this Christmas.”

BNP’s Tinsley highlighted that the volume of sales was very poor for the time of year, some 18 per cent below the long-term average for December.

The CBI said the three-month average – which smooths out monthly peaks and troughs – was negative for the fifth month running, at -7 per cent, and is expected to remain so in January.

Grocers, toy stores and mail order companies all reported rising sales volumes, as would be expected in the run up to Christmas, but stores selling fridges, washing machines and other “big ticket” items continued to report shrinking trade.

Sales of carpets and furniture bucked the trend though, rising for the third month on the trot.