High-street sales growth slows sharply - CBI
VAT rise and raw material costs drive up price inflation
Annual growth in high street sales volumes slowed sharply in February, and retailers do not expect any sales increase next month. At the same time price inflation has risen considerably and is due to remain high in March.
The CBI's latest quarterly Distributive Trades survey showed that 36% of retailers saw the volume of sales rise in the two weeks to February 16th, while 30% said they fell, compared with a year ago. The resulting balance of +6% was well below expectations (+25%), and the slowest pace of year-on-year growth in eight months.
At the same time price inflation on the high street has risen considerably in February, with 77% of retailers saying that average selling prices rose on a year ago, and 4% saying they fell. That gives a balance of +73%, the highest since 1991, up from +45% in November (this question is quarterly). Prices are expected to rise at a similar pace in March (+74%).
Looking forward, retailers predict sales to be at the same level as a year ago (0%), and expect that this weaker trend may continue. A rounded balance of -6% expect their situation to deteriorate over the next three months, with 15% of retailers saying that the situation would improve and 22% saying it would get worse, leaving 63% that said it would remain the same.
The volume of orders to suppliers has hardly grown in this survey (+4%), and is expected to be negative next month (-7%); the first negative expectation for this measure for nine months. Stock levels remain stable; the balance reporting stocks at least adequate to meet demand was similar (+20%) to that of the past two surveys.
Lai Wah Co, CBI Head of Economic Analysis, said: "The positive effect of seasonal discounting on the high street that previously boosted sales has now waned. Retail sales are likely to be more challenging over the coming months. At the same time prices are set to rise considerably as the VAT increase and the soaring cost of raw materials are passed on to shoppers."
Judith McKenna, Chair of the CBI Distributive Trades Panel and ASDA Chief Financial Officer, said: "The VAT increase coupled with the rise in the cost of many raw materials means that retailers are working even harder to deliver value to our customers on groceries and everyday items. With family budgets under increasing pressure, many shoppers are putting the purchase of big-ticket items on hold for the time being."
The volume of reported sales for the time of the year was also poor (-12%). Similar, lower than normal, sales are predicted in March (-11%). Sales volume trends were weaker across nearly all retail sectors this month. Durable household goods (-90%) and hardware & DIY (-82%) performed particularly poorly; the lowest figures since June 2009 and February 2009 respectively.
The important grocery and clothing sectors also slowed considerably. The balance of respondents reporting annual growth in sales volumes was +40% and +34% respectively, compared to +70% and +64% in the previous month. The brief recovery in employment seen in the retail sector in August and November appears to have now disappeared.
A balance of -12% of firms said that employment was down on a year ago. The expectation is similar for next month (-10%). However, retailers' investment intentions remain positive, with +14% of firms planning to authorise more capital expenditure over the next twelve months than during the past year. The wholesaling sector continued to perform well overall, with the balance of +47% of wholesalers that reported a rise in sales volumes being higher than expected (+30%).
However, there was a considerable deterioration in sales growth in a number of key sectors, particularly industrial materials (+50% from +100%) and food & drink (-55% from +17%). The overall sales outlook for next month remains positive (+38%). Sales in the motor trades were poor in February; 21% of traders said they increased, 52% said that they fell, giving a balance of -31%. The expectation for next month is -18%.