High street economy: Hopes for retail revival dashed by sales slump

HOPES that the first signs of green shoots in the economy had filtered down to Scotland’s high streets have been dashed by latest figures showing February’s retail sales north of the Border were the worst for the month since records began.

Sales in stores open for more than a year dropped by 1.7 per cent last month compared with the same period in 2011 – when they had slumped 1.3 per cent – according to the Scottish Retail Consortium’s (SRC) latest Retail Sales Monitor.

Retail experts and economists warned that depressed consumer confidence has left Scottish households unwilling to dip into their pockets for all but the most essential items, despite recent reports that the country could avoid a so-called double-dip recession.

They also said that a poor performance on Scottish high streets, combined with the Scottish Government’s Retail Levy, which is due to come into force next month, could spark a flurry of chains cutting back on the number of their stores north of the Border. Only food sales showed any signs of optimism, according to the monitor, but growth was still below the rate of inflation – demonstrating that consumers, who continue to feel the squeeze on their spending money, are buying less than a year ago.

Total sales in all stores were down 0.6 per cent on February last year, when they had increased by 1.6 per cent. The figure is lagging well behind the rest of the UK, where total sales last month rose by 2.3 per cent.

However, retail experts pointed to the fact that the drop was still “slightly” better than January’s record 1.5 per cent slump, the worst month ever on record, and modestly described the month’s performance as “less bad” than earlier this year. The Scottish figure also does not include internet sales – as the majority of companies’ online sales values are registered UK-wide – while the British equivalent monitor does.

“Less bad than it was is the best we can say for these figures,” said Ian Shearer, director of the SRC.

“It’s a relief that February didn’t outdo January’s worst-for-a-decade sales fall, but sales were again down on a year earlier and have now been negative for four of the last five months.

“The continued pressure on household budgets, and uncertainties about employment prospects, are undermining any boost to consumer confidence from falling inflation.

“It’s vital that governments in both Holyrood and Westminster support jobs and growth by holding back business costs.”

Non-food goods struggled to sell, with “big ticket” items such as kitchen white goods and furniture selling only when stores dropped prices with heavy discounts.

“Especially for big-ticket items, it’s taking margin- sapping discounts to generate the sales that are happening because many customers are still afraid to spend where they don’t have to,” said Mr Shearer.

Retail sales are a key indicator of the state of the nation’s finances, as the sector generates about 5 per cent of Britain’s annual Gross Domestic Product.

Inflation has recently fallen back from the high in September last year of 5.6 per cent, giving consumers some financial breathing room, while most economic studies expect the still worsening unemployment rate to pick up next year.

Professor Brian Ashcroft – director of the Fraser of Allander Institute at Strathclyde University, which last week predicted a return to substantial growth within two years but also warned that one in ten Scots could be out of work by the end of 2012 – said people were spending any extra cash on paying off debts rather than on luxury goods.

“This data suggests that Scottish households are not spending at the rate required to keep the economy buoyant,” said Prof Ashcroft.

“It means we will have to rely on exports and manufacturing to boost the economy, which is difficult, considering the rest of the world is also depressed, economically speaking.”

Sales of clothing, footwear and homewares were also badly hit as consumers reined in all but unnecessary spending.

The drop in clothing sales was only marginally better than that in January, the SRC said, while a depressed housing market meant that sales of fitted kitchens and bathrooms were substantially down.

Similarly, the homewares market performed poorly as consumers opted to replace only items which had broken, rather than upgrading or adding new purchases to their houses. Shops said sales declines were smaller than in January, but at the expense of margins.

David Lonsdale, deputy director of the Confederation of British Industry Scotland, said that increased delivery costs for retailers, including the Scottish Government’s Retail Levy, combined with a depressed retail sector, could deter large firms from operating in Scotland.

“Large retailers have a choice about where to invest and if it’s more expensive to invest in Scotland rather than elsewhere, then that changes the dynamic,” he said.

The latest income tracker compiled by supermarket Asda showed the average Scottish household’s disposable income has declined to £99 a week from £125 over the past two years.

“It is clear retailers are finding it harder to compete for fewer pounds in the pocket,” said Garry Clark, head of policy at the Scottish Chambers of Commerce. “The customer is clearly spending whatever money they do have on essentials. Spare cash is obviously in extremely short supply.

“It all comes down to consumer confidence and the retail sector is extremely exposed to any dents in consumer confidence. While on one hand there is a sense that we might not have a double-dip recession, there is definitely a feeling that it will be very slow growth over the course of the year.”

David McCorquodale, head of retail in Scotland for KPMG, which co-authored the report with the SRC, said: “February was another disappointing month with very little to cheer about on the high street.

“Many retailers feel they are fighting hard just to stand still at best and don’t see any light at the end of the tunnel. However, there are retailers out there who deliver what the customer wants and needs – in terms of product, brand and price – which proves that if the proposition is spot on it is still possible to outperform the market and the competition.”

The SRC report showed that total food sales rose by 3.4 per cent – the largest rise in seven months – but this is still below the rate of inflation which currently stands at 3.6 per cent.

The organisation said that some premium lines did well, due to people “trading down” from eating out, especially around Valentine’s Day – but value ranges also thrived.

“One positive is the continued recovery in food sales which showed their largest rise since July 2011,” added Mr McCorquodale. “While there is some inflationary increase in this number, it is nonetheless heartening to see recovery in the necessities.

“However, the significant fall in non-food sales, where both total sales and like-for like sales fell by more than four per cent – after the worst fall since records began the previous month – shows just how low consumer confidence has become. Until an upturn is truly felt through jobs, wages or net income, it seems that no level of promotion or discounting from the retailer can really lift the gloom.”

Gordon Emslie, retail consultant at Falkirk-based GNE Consultancy, said convenience stores were reaping the benefits from the major supermarkets as people looked to shop little and often rather than doing a once-a-week shop. “Many convenience stores are seeing like-for-like growth of up to five per cent, while the big multiples are struggling,” he said.

Price wars between major retailers are expected to continue for the foreseeable future as supermarkets battle for consumer spend.