Home news It really is not all doom and gloom for retail

It really is not all doom and gloom for retail

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For retailers, it’s been a tough day, after a tough Christmas, after a tough year. And for some, it’s looking a lot worse than it is for others.

Take Carpetright. Back in the summer of 2015, shares in the company were trading for £6 each. Carpetright was optimistic and apparently doing well.

On Friday, it released a miserable trading statement, bemoaning poor sales and a difficult retail environment, and duly saw its shares collapse.
They fell by more than 40%, tumbling to around 93p per share. Not quite a Carillion-style decline, but certainly confirmation that customers are keeping a close eye on their money.
We tend to buy new carpets at two times – either when we move, or when we’re feeling a bit flush with cash. And right now, there’s not a huge market in either of those. The housing market has slowed and, with inflation outstripping wage growth, household spending has started to tighten.
Mixed into this were Friday’s figures about retail sales, which were seized upon as evidence of a spiral of decline.
There was widespread coverage that sales had posted their biggest fall since the immediate aftermath of the Brexit referendum, dropping 1.5%. Annual growth was just 1.4%, down from 1.5% the previous month.
But scratch into these figures, and the picture is a little more complicated.
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Image: Mothercare chose not to discount ahead of Christmas
For one thing, those disappointing sales figures are for the quantity of goods being bought.
If you change that into the money being spent on them, you see that spending has actually gone up by 4.4% over the past year. So we are spending more money, but we’re ending up with fewer things. That’s the effect of general inflation, which peaked at the end of last year.

It’s also the result of something specific – inflation in the shops.
Between July 2014 and November 2016, prices on the shelves actually declined as retailers battled against each other to grab a share of the market. Then, as the effect of the currency movement after the referendum started to kick in, retailers decided that they would have to pass on some of the increase in costs to consumers.
That’s when prices started to go up, which led to inflation, and, with the occasional quiet period, they’ve been gradually rising ever since.
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But so have sales – yes, the rate of increase has slowed, but both the quantity and value of sales are still going up.
Secondly, there’s something about these figures that is misleading. It’s not so long since December was, by far, the most important month of the year for retailers, but those days have now gone, thanks to Black Friday – which happens in November.
Now, a lot of us do our Christmas shopping in November, when the Black Friday sales start.
So it turns out that we spent 0.9% less money in December than we did in November, and bought 1.5% fewer things. But if you lump together October, November and December into one quarter then things look healthier.

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All this matters because household spending has helped to prop up the UK’s economy ever since the financial crisis. If it slowed markedly, the economy would suffer.
There’s no question that retail sales are becoming more sluggish. Even online sales, which have been growing like topsy, have hit a speedbump. But, with the exception of a few specific retail companies, nothing has yet fallen off a cliff.

Source: SKY