Discounts and frozen prices to lure consumers

STRUGGLING retailers are holding back on price increases and offering discounts to lure shoppers as new figures show the extent of the carnage in the high street.

Slowing price rises are good news for shoppers but experts say the discounting cannot be sustained as retailers come under pressure from the rising cost of raw materials.

Stephen Robertson, director general of the British Retail Consortium, which published the figures, said: “After last week’s official return to recession, these figures give customers some reasons to be cheerful.

“Fuel, utilities and even stamps are much more expensive than they were but retailers are holding back or actually cutting prices.

“Clothing, shoes, electricals and furniture were all cheaper than this time in 2011 but margin-slashing discounting cannot be sustained forever.”

Robertson warned it was “hard to predict” whether retailers would put an end to discounts and jack up prices, but pointed to the ongoing increase in corn and soyabean costs, which will trickle through to food price inflation.

Mike Watkins, a senior manager at Nielsen, which helped compile the figures, noted that retailers’ spending on promotions “remains high”, eating into companies’ profit margins.

Food price inflation dropped to 4.3 per cent last month from 5.4 per cent in March, while non-food prices fell by 0.5 per cent, slowing from a 0.9 per cent drop in the previous month.

Together the two figures led to the shop prices index standing at 1.3 per cent in April, down from 1.5 per cent.

Analysts have highlighted that much of the inflation in the UK’s economy is being driven by “external” factors, such as high oil prices, which affect distribution and production costs.

News of the continued squeeze on shops’ profits came as analysis by accountancy firm KPMG showed a near fourfold increase in the number of retailers slipping into administration in the first quarter of the year compared to 2011. The 180 per cent rise compared to 70 per cent for the wider retail sector which includes car dealers and wholesalers and illustrates the extent of the difficulty faced by high street operators.

Blair Nimmo, head of restructuring for KPMG in Scotland, said: “There was a wave of high-profile retail administration appointments in the first days of 2012 – not least Blacks, La Senza and Peacocks – and the latest statistics from the Insolvency Service show that the New Year pain extended beyond a small number of well known brands.

“Our own pipeline of work suggests the high street and the many companies that service the retail industry are running out of options, with administration – the option of last resort – now inevitable for some.”

Nimmo said the rise in the number of retailers being placed into administration led to a 20 per cent increase in the overall tally of firms going to the wall during the first three months of the year.

Data from the Office of the Accountant in Bankruptcy published last month showed Scottish firms are folding in their largest-ever numbers, with figures released on Friday by the Insolvency Service revealing that the Scots failure rate outstrips that for England and Wales.