The retail sector cooled off slightly in May following an
exceptionally buoyant April. Retail sales were, however, 5.4% up in volume
terms on May 2001, still a healthy rate of growth. Overall this year, retail
sales are 5.8% up on the same period last year. In 2001, retail sales also grew
by a robust 6% per annum.
In many respects, the buoyancy of the retail sector is something of a
surprise given the weakness of the economy in general. Low prices and special price
promotions continue to boost sales in certain sectors. Clothing and footwear
have benefited from big falls in prices, as have computer and audio-visual
equipment. Food prices, especially vegetables are also falling quite sharply.
Further evidence of a slowdown is contained in the latest CBI’s monthly
Distributive Trades Survey. This suggested that retail sales grew at the
slowest rate for 18 months in the year to June. Sales expectations for the
month ahead have also slipped again.
The findings support the May survey, which suggested a slowdown in the
growth of spending, is starting to take effect. Comparing sales with a year
earlier, 45% of firms said sales were up while 29% said they were down. The
balance of plus-16% in June compares with plus 25 per cent in May and plus 57%
in April.
Retailers continue to be optimistic about the month ahead, though this is
the second consecutive survey in which sales expectations have not been
fulfilled. The balance of plus 16 recorded for sales volumes in June is well
below the expected plus-35%. Looking ahead to July, retailers revised
expectations downwards. Some 44% of respondents believed sales will improve,
11% said they will decline, giving a balance of plus 33%.
With sales continuing to disappoint, retailers have reduced stocks, with
orders placed with suppliers rising at the slowest rate since April 1999. A
balance of plus-21% in May compares with only plus-3% in June as retailers ran
stocks down to a level that is nearer the long-term average. Stock levels are
expected to be run down further over the coming months.
Few retailers recorded acceleration in the rate of sales growth; grocers
were the only major exception. Retailers of confectionery, tobacco, newspapers,
durable household goods, books and stationery all reported slowing growth, but
were still experiencing substantial rises in sales volumes. Firms selling
clothing, furniture and carpets reported the sharpest slowdowns in sales
growth, showing negative or zero growth after robust increases in recent
surveys.
Wholesalers’ sales volumes slowed in response to May’s weaker retail sales.
But sales were well above the long-term average and, for the first time this
year, wholesalers reported increased sales for two months running.
Wholesalers’ stocks remain relatively low and orders placed with suppliers
rose at a far slower rate than in the previous survey.
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The market has turned for motor traders with reported sales even weaker than
expected. Asked about volume of sales, 30% said they were up and 23% said they
were down. A slowdown in growth to plus-17% had been expected, but the actual
balance of plus-7% indicates a more abrupt slowdown. In spite of this, business
is still considered above average for the time of year.
Year-on-year employment figures for the sector are up by 29,000, with an
annual rise in wages of 3.6%. For the present year, profits growth is expected
to be around 10%, with revenue growth for the same period predicted to be 3%.
