Retailing review: November 2007
Each month Hays Retail brings you the latest news from Barclays Commercial Bank Retailing Review.
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Sector overview
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Retail sales were a little weaker in October than was generally expected, falling slightly from the bouyant level recorded in September. Nevertheless, sales volumes in the latest three months were 5.1% higher than in the same period a year earlier. This continues the relatively strong trend in retail sales that has been evident throughout 2007 despite interest rates having risen on five occasions since August 2006 and uncertainties caused by developments in the financial markets in the latest few months.
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At a sub-sector level, the trend growth in the volume of sales in the latest three months compared with a year earlier was as follows:
- Non-store retailing and repair (which includes internet and mail order retailing) +12.8%
- Household goods +8.6%
- ‘Other’ non-food retailers +7.0%
- Non-specialised non-food retail (which includes department stores) +7.2%
- Clothing stores +4.9%
- Food stores +1.7%
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The sales of non-store retailers grew by 12.8%, a little slower than in the summer but still a strong performance which was driven by the continuing success of the internet sector. Internet retailers are expecting to benefit from strong sales over the coming Christmas period.
Household goods retailers reported strong underlying trend growth in sales of 8.6% in October. However, this was a little slower than in the summer and the indications are that this was achieved by substantial price discounting as turnover rose by a much more modest 2.5% over the period. Indeed, recent reports from a number of the leading companies in the sector have reported that conditions are becoming more difficult.
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Sales of clothes retailers picked up in September and October with the launch of the autumn designs, sales of which have been reinforced by the wet and wintry weather.
Prices
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While retail sales’ growth has remained resilient so far this year, there is growing evidence that retailers are having to entice customers with increasing sales bargains and price discounts.
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Prices in the high street fell by 1.1% in the year to October compared with inflation of 0.5% in June. The falls in prices in the latest month were driven across all sectors with the exception of food retailers. While the cost of goods to retailers may be declining as a result of the strength of sterling against a weakening dollar, there also seems to be an intensification of price competition as retailers have sought to attract consumers.
Survey evidence
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The consumer confidence index fell by 1 point to -8 in October, which reflects another slight decrease in consumer confidence.
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Three of the five measures reported a drop whilst the remaining two measures increased.
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The index for making major purchases decreased by 2 points from -3 in September to -5 in October.
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Meanwhile, households’ views about the current general economic situation worsened whereas the economic outlook for the next twelve months improved slightly.
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According to the CBI Distributive Trades Survey, the rate of growth in sales in October was at its weakest since November 2006 with a balance of only 10% of retailers reporting a rise in sales.
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According to the survey, the most robust sectors are retailers of footwear & leather, furniture and carpets and durable household goods, whilst retailers of books & stationery, hardware, china and DIY and of clothing reported the greatest falls in sales’ volumes.
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The balance of retailers expecting sales’ volumes to grow over the next month has fallen slightly.
Retail sector outlook
We expect retail sales to grow by around 4% in 2007 but that the rate of growth will slow to 2-2.5% next year as the impact of the rises in interest rates and the repercussions of the developments in financial markets impact consumers’ expenditure.
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