High street sales growth ends while prices rise strongly
Hopes of stronger high street sales failed to materialise in February and instead sales growth came to a halt, while the prices of goods rose strongly according to the CBI
A third (34%) of respondents to the latest Distributive Trades Survey said year-on-year sales volumes rose in the first half of February, while 36% said they were down.
The resulting rounded balance of -3% was the first negative result since November 2006 (-9%) and disappointed retailer expectations (+10%). Although sales volumes growth lay below the long-term trend of +18%, the gradual slowing that started last May is not expected to worsen next month, when retailers expect continued flat sales.
Sales for the time of year were considered slightly below average, while the three-month moving average balance, which smoothes out monthly blips, fell to +3%, which was the lowest since late 2006.
Orders placed with suppliers fell marginally, while stock levels edged up relative to expected demand but remained below their long-run average.
However, despite belt-tightening among increasingly cautious consumers and flat retail sales, the prices of goods in the year to February increased at their fastest rate in over a decade, as many retailers felt the pressures of rising energy, food and raw material costs.
Fifty-five per cent of respondents said that average selling prices were up on a year ago, while 6% said they were down, giving a rounded balance of +50%. This was the strongest since August 1996 (+51%) and a similar rate of price increase is expected next month (a balance of +48%).
Job cutting in the sector continued in line with the modest rate seen since August 2006, but retailers’ plans to invest in the next 12 months have weakened noticeably. Similarly, since November, retail sentiment has worsened, with a balance of 9% expecting a deterioration in the overall business situation over the next three months.
Looking at the sub-sectors, sales growth remained brisk for grocers, where a balance of +30% reported year-on-year growth, and shops selling footwear and leather (a balance of +35%). Sectors linked to the housing market fared less well. Sales volumes fell sharply again on a year ago for those selling durable household goods (a balance of -70%), and there was a more measured decline in sales in furniture & carpets (-24%), and hardware, china & DIY (-13%).
Ian McCafferty, CBI Chief Economic Adviser, said: “The high street has been slowing gradually since last April and sales earlier this month were very subdued, while prices have risen strongly.
“Reflecting the increasingly tough conditions faced by the sector, business sentiment and investment plans have both taken a hit.”
In the wholesale sector, sales volumes over the year to February fell heavily, and were driven by tumbling sales in the food & drink and other goods sub-sectors. Sales volumes were considered to be extremely poor for the time of year: a balance of -39% was the weakest since November 1992 (-48%), and employment is expected to fall sharply again next month.
Motor traders saw an unexpected growth in year-on-year sales volumes in contrast to the steep declines of the previous two surveys. Business sentiment recovered, with a balance of +9% expecting the overall business climate to improve over the next three months, and investment intentions have also improved.
