Retailers face struggle as sales fall

Published 28th Sep 2011

• Balance of -15% of retailers saw sales drop
• Quarterly rent may tip shops over the edge



Thousands of retailers could struggle to pay quarterly rent payments at the end of the week after figures showed retail sales dipped again this month.

According to R3, the insolvency trade association, a fall in sales during September compounded an already delicate financial situation that could push many big names over the edge when rent payments become due.

Three months ago Habitat, Homeform and Jane Norman were all unable to meet rent demands and fell into administration. Quarterly rent days have become a battleground this year between shop owners and landlords as shoppers retreated from the high street to save funds.

The distributive trades survey by the CBI revealed that retail sales last month suffered their sharpest fall since May, with furniture and department stores the worst hit. The survey found 24% of retailers saw sales volumes rise year-on-year, while 39% reported a fall, giving a balance of -15%.

More worryingly, the three-month average of sales, which smooths out volatility in the monthly figures, declined at the fastest rate since August 2009.

Analysts said weak consumption could drag the economy down further and signal a contraction in output in the third and fourth quarters. They warned retailers to prepare for a difficult Christmas.

Frances Coulson, R3 president, said heavy discounting and rising input prices pushed firms closer to the edge of bankruptcy.

"Last time round, the rent day identified many retail businesses that had survived the recession [but] did not have the funds to meet their rental obligations. They had depleted their reserves to stay afloat and had no contingency plan for additional costs, unexpected outgoings or a fall in sales," she said.

"Over the preceding three months we have seen little improvement in retail sales, economic growth or consumers increasing their expenditure. For that reason we are likely to see further retail casualties."

The warning will increase the pressure on the chancellor, George Osborne, to introduce measures in his autumn pre-budget report to boost growth and prevent a double-dip recession but he is expected to stick to his tax and spending plans when he tells MPs in November how the government will react to the weakening UK and global outlook.

Chris Williamson, chief economist at financial data provider Markit, said: "The findings add to a growing body of evidence which suggests that retailers will enter the all-important final quarter of the year fighting for business in the face of weak consumer confidence. Household spending is being subdued by job worries, rising prices, higher utility bills and weak pay growth."

He added: "Intense competition on the high street is likely to help bring down inflationary pressures, but will also act as a drag on economic growth. With business activity already looking lacklustre as we move into the fourth quarter, an accompanied downturn in high-street sales adds to the risk of the economy contracting."

Samuel Tombs, UK economist at Capital Economics, said conditions on the high street remained tough for retailers. "The survey revealed that retailers expect the stagnation to continue: the expected sales balance fell from -7 to -14. But with inflation set to rise further, house prices falling and the economy now starting to shed jobs again, even that expectation may prove to be too optimistic in the months ahead."

Source: ' Guardian '

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