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Record fall in retail sales sparks recession fears

SCOTTISH retail sales fell at the fastest rate for 12 years in January, according to research that will heighten fears the country could slip back into recession.

Spending dip: Although hit by the downturn, retailers such as John Lewis have been helped by robust sales of household goods. Picture: Peter Macdiarmid
Spending dip: Although hit by the downturn, retailers such as John Lewis have been helped by robust sales of household goods. Picture: Peter Macdiarmid

The Scottish Retail Consortium reported that total spending fell by 1.5% annually in January as shoppers tightened their belts in response to concerns about the outlook for 2012.

The latest retail sales figures from the consortium and KPMG show that consumers slashed spending on big ticket items such as fitted kitchens and TVs last month. The findings indicate that people are focusing on buying items they regard as essentials.

Spending on food increased by 2.8% but this left consumers with less money in their budgets for items such as furniture.

Sales of non-food items fell by a record 5.5% in January compared with the same month in 2010.

The fall came despite retailers' efforts to encourage people into the shops by offering deep discounts on many goods.

Ian Shearer, director of the Scottish Retail Consortium, said the figures would set alarm bells ringing among retailers.

"The biggest year-on-year drop in overall sales in over a decade is a sign of troubled times for retail," said Mr Shearer.

David McCorquodale, head of retail in Scotland for KPMG, said: "Already in 2012 we have seen several big name retailers fall victim to the tough trading environment and unfortunately this trend looks set to continue."

Amid the apparent gloom some firms are bucking the trend.

Kim Lowe, managing director for John Lewis department store in Glasgow, said: "There's no doubt that the effect of the economic downturn has been felt within Scotland. Despite this, a number of our departments are performing well."

Ms Lowe said sales of bedroom furniture, fitted kitchens and carpets were beating expectations. She added: "The electrical and home technology [department] has also had a strong start to the year with iPads, computer accessories and new lines of notebooks all stimulating trade."

Overall, the numbers suggest Scottish consumers went back on the defensive in January, after allowing themselves to buy seasonal treats in December.

Mr Shearer added: "Customers have confronted reality again since Christmas. Consumer confidence remains low, Scottish household incomes are being squeezed by increased utility and fuel prices, and continued fears over job prospects and the wider economy are front-of-mind for many – deterring purchases which are not immediate needs."

The data sends a clear signal that one of the main drivers of economic growth is slowing in Scotland.

The slowdown could push Scotland into a double dip recession.

The overall UK economy contracted by 0.2% in the fourth quarter of 2011. Figures for Scotland will be published in April.

The consortium's findings include worrying signs that the consumer economy is in worse shape in Scotland than across the UK. Total sales increased by 2.1% annually across the UK in January.

In December total sales increased by 1.6% annually in Scotland but by 4.1% in the UK.

Richard Dodd, head of media at the consortium, said: "Scottish retailing is facing a tough time and a tougher time than in the UK as a whole.

"It's about the proportion of the Scottish economy that's based on the public sector and the proportion of households that are feeling personally vulnerable to spending cuts."

Mr Dodd said average incomes are a "bit lower" in Scotland than for the UK, meaning the squeeze on budgets resulting from rising fuel and energy costs has had a greater effect.

The task of analysing trends in spending in varying parts of the UK is complicated by the treatment of online sales in the survey.

Online sales made by firms based in England to consumers in Scotland are included in the figures for the UK but not for Scotland. However, Mr Dodd noted online sales only account for 8% of the total.

Stripping out the effect of store openings and enlargements, like for like sales fell by 2.6% annually in Scotland in January and by 0.3% in the UK.

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