Retail sector in need of hard sell

Friday 20 July 2012

IT is no surprise that UK retail sales last month fell short of expectations, rising by just 0.1% from May instead of the 0.6% predicted gain from the Queen's Diamond Jubilee.

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But the 0.7% fall in food and drink sales, in defiance of hopes for a boost from jubilee street parties and gatherings over the long weekend, also points to the limited scope for a turnaround from one-off events.

Year-on-year, food sales have increased sales by value as a result of rising prices but not by volume.In Scotland, where less hope was pinned on lower-key celebrations, both like-for-like and total retail sales were weaker than the UK as a whole for the 15th month in a row. The only straw within clutching distance is that the gap has narrowed. Even where there is growth, such as in year-on-year food and drink sales, this is due to rising prices rather than increased volume. Conversely, in clothing and household goods, sales are only increased by slashing prices. Of course, the weather has been a major factor. It was to be expected that sales of summer clothing and seasonal purchases like barbecues, cycles and paddling pools would be torpedoed in the wettest April to June in the last 100 years.But steep falls in sales reported yesterday by JJB Sports and Halfords were also experienced by Kingfisher, when home improvements might be expected to take the place of house-buying, and by Mothercare at a time when the rising birth rate should increase demand for nursery goods.It is clear that caution is now the watchword for consumers reluctant to purchase non-necessary items and intent on good value when they do buy. This means retailers will have to continue aggressive discounting to maintain the thousands of jobs which depend upon the sector and the strategy cannot be continued indefinitely.This week's figures showing a fall in unemployment and a rise in the number of people in work in both Scotland and the UK is one encouraging sign. Another is the sharper than expected fall in inflation from 2.8% in May to 2.4% in June, providing hope, if this continues, of a much-needed increase in real incomes. Yet the future remains uncertain and David Cameron's admission that the Government's austerity programme is likely to be extended to 2020 can only deepen the gloom, particularly for the struggling retail sector. It is time for a change of tack. The International Monetary Fund's report on the UK provides objective evidence that austerity is not working. It says there is a need to slow the pace of budget cuts and provide further stimulus if there is to be recovery next year. It is almost certain to be necessary. The schemes to encourage more bank lending and underwrite infrastructure projects are welcome but will take time.Mr Cameron says he still wants to make tax cuts but only if they can be funded by reductions in public spending. It is time he reconsidered the potential for reducing VAT. It is a simple measure that could be implemented quickly and would not only boost retail spending but also help construction which has seen the most significant downturn. And it would have a longer effect than any short-term gain from the Olympics.

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Food and drink

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Retail sector in need of hard sell

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