Britain’s retailers have suffered their toughest Christmas since the financial crisis struck, according to industry figures that showed sharp discounting continuing to take its toll.
Capping a tough year on the high street, the value of December sales dropped by 0.4% on a year earlier in like-for-like terms, according to the British Retail Consortium (BRC) – the worst December performance since 2008, when sales had tumbled 3.3% in the aftermath of Lehman Brothers collapse.
However, the trade group noted that food sales picked up in December, rising for the first time since April. There was also some support for non-food items in end-of-season sales.
The figures came after mixed trading reports so far for the industry’s most crucial month. Marks & Spencer has admitted to a dismal Christmas, while Next and John Lewis saw strong sales. Debenhams and Morrisons update investors on Tuesday.
The BRC director general, Helen Dickinson, talked about a “positive performance” overall in December. “It’s clear that targeted discounting has worked for the UK’s retailers – prices have been cut just enough to encourage customers through the doors, but not so much that sales growth has been completely choked off,” she said.
The BRC-KPMG retail sales monitor showed there was a 1% rise in total sales, which are not adjusted to strip out the effect of changes in floor space as shops open and close. That was also the weakest December performance since 2008.
David McCorquodale, head of retail at the report’s co-authors, KPMG, highlighted the growing role discounting has played in the runup to Christmas. He said the US-inspired Black Friday of flash sales was followed by a “challenging lull in spending” as consumers waited for future bargains. “This difficult stop/start sales environment has been undoubtedly challenging, but most retailers have managed to achieve a flat, but respectable, sales performance this Christmas. Time will tell on margins,” he said.
Economists have predicted some boost to consumer confidence from falling household costs, especially as petrol prices drop thanks to the sliding oil price. But they have also flagged up the election in May and uncertainty about the global economy as weighing on sentiment. Retail analysts have pointed out that even if sales pick up in volume in 2015, lower prices will put pressure on profits.
McCorquodale predicted this year would bring more tough price competition between retailers, particularly supermarkets: “The big four grocers have already signalled they will cut prices to secure sales. Non-food retailers will fare better, but whilst consumer confidence remains fragile, these too are vulnerable to shocks, be they political or economic.”
The BRC report suggested some relief for food sellers before Christmas as they managed to stem the decline in sales. The like-for-like drop of 2.2% for October to December was the smallest drop in three-month average terms since the start of the summer. The BRC said seafood seemed particularly popular this Christmas and people were opting increasingly for premium ranges for their festive fare.
The figures followed a separate report last week from the BRC showing that prices in UK shops fell in every month of 2014 and predicting that the falling price of oil and other commodities would continue the pattern in coming months.
Official figures on Tuesday are expected to show that overall inflation fell to a 12-year low in December. After 1% inflation on the consumer prices index in November, the rate is predicted to drop to 0.7% for December after a utility bill freeze, the supermarket price war and cheaper petrol. Benign price pressures mean the Bank of England governor, Mark Carney, is almost certain to have to write to the chancellor, George Osborne, explaining why inflation is so low.
Under the Bank’s remit, if inflation strays more than one percentage point in either direction from the 2.0% target, the governor must write explaining why, and what the central bank intends to do about it. All of the 14 letters written until now have been after inflation missed the target too far in the other direction, overshooting by more than 1 percentage point.
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