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Retailers enjoy first year-on-year rise in sales for 13 months

Originally published: 29.04.2009

UK retailers enjoyed their first year-on-year rise in sales volumes on the Confederation of British Industry's measure in 13 months in April, but this reflected a later Easter and the pattern of decline is forecast to resume in May.

The CBI's latest monthly distributive trades survey yesterday showed 44-per cent of retailers enjoyed a year-on-year rise in sales volumes in early April and 41-per cent suffered a fall, with the remainder reporting an unchanged position.

The net 3-per cent enjoying a rise was the best outturn since January 2008 - when a balance of 4-per cent reported a year-on-year increase in sales volumes. A net 44-per cent of retailers had reported a year-on-year fall in sales in the first half of last month.

Easter fell during the first half of April, boosting the year-on-year sales comparison in the early part of this month. Easter fell in March last year.

Only 25-per cent of retailers expect sales volumes next month to be higher than in May last year, with 40-per cent expecting a fall. However, this net 15-per cent expecting a fall is not so bad as the balance of 42-per cent which had a month ago predicted a year-on-year drop in sales in April, signalling some easing of pessimism among retailers.

The overall year-on-year rise in sales volumes reported by retailers in early April reflected strength in the grocery sector and in footwear and leather, with other sub-sectors continuing to struggle.

Signalling that April's positive performance does not mark a return to consistent year-on-year rises in sales on the CBI measure, 47-per cent of retailers said the volume of orders placed upon suppliers this month was lower than in April last year and only 37-per cent reported an increase. That said, the rounded net 11-per cent reporting a drop in orders placed with suppliers was not as bad as the balance of 47-per cent reporting such a year-on-year fall in March.

Andy Clarke, chairman of the CBI distributive trades panel and chief operating officer of supermarket group Asda, said: "The good turnout by shoppers over this year's later Easter may well have influenced the April retail figures and, while they mark a respite, they should not be taken as an indication of a high street revival. With unemployment rising and growth in average earnings down, consumers remain very wary, and retailers themselves think that sales will drop again in May."

Howard Archer, chief UK economist at consultancy IHS Global Insight, described the CBI's distributive trades survey as a "very welcome development, which boosts hopes that the rate of decline in UK economic activity is now moderating after a particularly torrid final quarter of 2008 and first quarter of 2009".

He declared: "Certainly, sharply-reduced mortgage payments and lower inflation are boosting the purchasing power of those with jobs."

However, noting pressure on households from soaring unemployment, from slow wage growth, pay freezes or wage cuts, and from falling house prices, substantially reduced share prices, increased debt levels, tight credit conditions, and highlighting some consumers' choice to save more, Archer added: "We are sorry to say that we still suspect that consumer spending will contract over the coming months, although we do believe that the rate of decline in UK economic activity peaked in the first quarter."

Jonathan Loynes, chief European economist at consultancy Capital Economics, said: "April's UK CBI distributive trades survey gave a surprisingly upbeat picture of high street spending, but should probably be treated with some caution. The outlook for consumer spending is still very weak.

"The jump in the reported sales balance from -44 to +3 - the highest level since January 2008 - left it consistent on past trends with an acceleration in annual growth of retail sales volumes (on the Office for National Statistics' measure) from March's 1.5per cent to something like 4per cent."

Loynes noted the CBI sales balance in April "was almost certainly boosted by the timing of Easter".

However, he acknowledged that this did not explain retailers' less-bleak expectations on sales declines or the slowing of the year-on-year decline in orders placed with suppliers.

He said: "These improvements might point to a genuine pick-up in high street activity, but we would hesitate before reaching that conclusion. Not only is the survey often volatile from monthto-month, but the general conditions facing consumers are not consistent with a strong pick-up in spending growth.

While the drop in inflation has boosted spending power, the combination of rising unemployment and falling house prices has maintained the pressure for households to raise their savings and reduce their borrowing."

He noted that consumer spending on services had recently been much weaker than retail sales.

Loynes added: "While sales rose [by 0.7per cent] in Q4 last year, for example, total spending dropped by 1per cent and is likely to have fallen sharply again in the first quarter of this year.

"Overall, then, while the CBI survey can perhaps be added to the list of tentative 'green shoots' which have emerged over recent weeks, we believe that it would be premature to conclude that the consumer downturn is over. Indeed, we still expect total household spending to drop by around 3.5per cent this year."


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