Summer sales fail to reverse slowing growth in high street spending
High street spending continued to grow in the first half of August, but at the slowest rate since last November, as sales growth and price increases fell back from their spring peaks to their long-run averages, the CBI said today (Thursday).
In its snapshot of the high street, the business group revealed that 42% of retailers said year-on-year sales volumes were up in August, while 26% said they were down. The rounded balance of +15% was in line with expectations but was the lowest balance since November 2006 (-9%).
The three month moving average of sales volumes, which smooths out monthly peaks and troughs, fell to a balance of +17%, slowing continuously since the May peak. And the volumes of sales for the time of year were considered below average by a balance of 7% of respondents. Looking ahead, retailers expect sales growth to continue at a similar rate in September.
The slowing in high street demand has meant retailers are less able to push up prices. A balance of +16% reported putting up the prices of their goods compared to a year ago – weaker than the 9 year high of +33% seen in May, but back in line with its long-run average. A balance of +12% expects to raise average selling prices in the coming month, indicating that price inflation in the retail sector is softening.
The slower sales growth, down from the stronger rates seen between March and May, and the less strident pricing power both suggest that interest rate rises are working through to the high street, where the appetite for big ticket items like durable household goods has remained weaker than last year.
However, the retail sector is showing some positive signs. The balance of firms planning to invest more over the year ahead than in the previous year, though still modestly negative, is at its highest (-1%) for over two years. Retailers are also more upbeat about the medium term than they have been in a year, with a balance of +9% expecting the business situation to improve over the next 3 months. Employment continued to fall, but at a modest rate.
The Quarterly Distributive Trades Survey ran from July 31 to August 15, gauging conditions in some 158 businesses, including most of the UK’s biggest high-street chains, and representing 20,000 outlets and 40% of retail jobs.
Some subsectors fared better than others. Footwear & leather retailers again enjoyed the strongest growth (a balance of +70% said sales were better than in August 2006), followed by furniture & carpets (+46%). Notably, booksellers & stationers (+41%) reported their strongest month since April 2006 (+54%), evidence perhaps of the ‘Harry Potter effect’.
The clothing sector reported the greatest fall in year-on-year sales (a balance of -37%), which may reflect unusually poor summer weather this year, and consequent weak demand for summer lines. Sales of durable household goods also decreased (-15%), continuing the trend since May.
Orders placed with suppliers grew for a balance of 15% of firms over the year to August, similar to the trend of recent months.
Ian McCafferty, CBI Chief Economic Adviser, said: “The strong high street spending that retailers enjoyed over the spring has passed, and they have experienced a steadier rate of sales over the past quarter. “This more moderate growth is expected to continue, and retailers are less inclined to put up prices, which should help alleviate pressure to move interest rates up again.
“The Harry Potter effect seems to have helped lift sales for booksellers, but the damp and disappointing summer has not done clothes shops any favours.” Among wholesalers, a balance of +51% reported higher sales volumes than a year ago, which is the strongest since February 1998 (+51%), and far better than expected last month (a balance of -6%). Wholesalers predict that this strong growth will continue into September.
A balance of 27% of motor dealerships reported a fall in sales on a year ago, a rate that has decreased steadily since June, and the weakest since October 2006 (-42%).
