Retail Sales Drop in Britain

Retail sales tumbled last month as consumers tightened their purse strings, putting down an ominous marker for the rest of the year after a a surprise rise in UK sales in January.

Like-for-like retail sales tumbled by 1.8 per cent in February on the same month last year, although the arctic conditions at the start of the month hit non-food retailers, the British Retail Consortium-KPMG Retail Sales Monitor revealed yesterday. Total retail sales grew a meagre 0.1 per cent, as a continuing poor performance at non-food retailers was largely propped up by resilient sales at the large grocers. The dire data increases the likelihood of more struggling retailers collapsing and other chains introducing further jobs cuts and store closures in 2009.

Retailers will also be concerned about their prospects for selling products at full price in 2009, given that January's surprise 1.1 per cent rise in like-for-like and 3.2 per cent uplift in total sales was driven by hefty post-Christmas discounting.

Stephen Robertson, director general of the BRC, called the figures "disappointing". He said: "It's now clear we were right to fear January's surprise year-on-year sales rise was just a discount-driven blip. The short burst of spending unleashed by January clearances has largely vanished, replaced by sales as weak as most of last year." Underlying sales fell in all retail sectors, apart from food and children's clothes. Mr Robertson added: "Early February snow didn't help but customers and retailers' difficulties run deeper."

Fashion retailers suffered their worst sales since April 2008. Women's and menswear sales were "well down" on a year ago and footwear was also down on a year ago, the BRC said. Having picked up in the January clearance sales, sales of home accessories and house textiles fell back sharply to well below year-earlier levels.

Helen Dickinson, the head of retail at KPMG, said: "Battling falling sales—total, as well as like-for-like—is not a sustainable prospect for many retailers in the non-food sectors, particularly as the impact of rising import costs is also filtering through to their margins. More announcements of job losses and other cost-cutting measures in the sector look likely in the short term."

Many industry experts expect more retailers to fold over the coming months as the consumer recession deepens. Robin Knight, a partner at the restructuring firm Zolfo Cooper, said: "There will undoubtedly be a further flurry of collapses in the retail sector because retail is still heavily over-subscribed—there are too many fascias, stores and too much space. In the next few months, we will start to see the failure of businesses that were relatively healthy."

The decision by some retailers to discount fiercely over the past few months at the expense of their margins could be a factor in their demise. "We are going to see for whom the great discount gamble has worked," Mr Knight said.

The sharp contrast between the food and non-sector was laid bare by the BRC's three-month data. Between December and February, like-for-like sales in food sector grew 4.3 per cent, but fell 5.3 per cent among non-food retailers. Across all categories, underlying retail sales fell by 1.4 per cent over the quarter. One bright spot was internet, mail order and phone sales, which were 12.3 per cent up in February on a year ago, although this was down from 30 per cent growth in December.

Before it's here, it's on the Bloomberg Terminal.