July 30, 2008 | posted by Michael Baxter in High Steet | comments (0) |

It was around five weeks ago now, when the ONS reported the biggest monthly rise in retail sales since the 1980s. The findings of the report made no sense at all. A month on, and the ONS reported a fall in sales of a similar scale to the previous month’s rise. So the balance had been restored. But still we waited: anecdotal evidence says the High Street is suffering. But is it?

Yesterday and this morning saw three pieces of evidence emerge to suggest the High Street is now following house prices, down, down and down.

First off the block was the CBI. Sixty one per cent of respondents to its latest Distributive Trades Survey reported that sales in the first half of July were lower than a year ago, while 25 per cent said sales had increased, giving a resulting balance of -36 per cent.

And a balance of minus 36 gives the index its lowest reading ever, with records going back to 1983. Even more alarmingly all retailers in the durable household goods and furniture/carpets sectors reported falls in sales. That’s all. It just goes to show how falling house prices are already having a devastating effect on some sectors.

Andy Clarke, Chairman of the CBI Distributive Trades Panel, and Retail Director of Asda, said: “It is turning out to be a very grim summer for many retailers. Pressure from higher fuel and food prices is prompting many people to rein in their spending, proving that value retailing has never been more important.”

He added: “The faltering housing market has really depressed sales of home furnishings and white goods this month and the high street is still struggling, but supermarkets are faring better.”

Now the CBI survey suffers from one big problem. Data is only taken over a two-week period, and therefore is more prone to statistical quirks.

Even so, the three-month moving average of sales volumes, which smooths out monthly volatility, continued on the downward trend which started last summer. The balance of -20 per cent was the weakest since November 2005.

But the CBI was not alone in telling of woe. This morning, a report from Deloitte told that the first half of 2008 saw a 21 per cent rise in the number of clothing, fashion and cosmetic retailers going into administration.

Finally, there was Next.

Well, actually, the retailer had some good news. Retail sales in the second quarter were down, but only by 2.4 per cent, compared to 9.4 per cent in Q1.

But then again, Q2 of 2007 was awful for Boots – so to say sales are just 2.4 per cent down on a year ago, when a year ago they were terrible, is not much consolation.

Boots is predicting sales to fall by 6 per cent on last year during the next two quarters.

July 23, 2008 | posted by Michael Baxter in High Steet | comments (0) |

More and more of us are at it. We are at it at Lidl and Aldi too. But then again, they have been at it for a lot longer on the continent. Maybe it’s a case of no discounts please, we are British.

Aldi and Lidl managed to put on 20 and 14 per cent growth each over the year to 13 July, say the latest figures from TNS. It says, “The Discounters now account for a 5.9 per cent share of Grocery Spending, higher than ever before reported, and they are also the fastest-growing sector of the market.”

Then again, apparently, the French and Germans love them a good deal more. Discounters enjoy an 11 per cent market share in France and a 38 per cent share in Germany, according to Europanel.

Mind you, shareholders in most grocers should be pretty chuffed right now.

Asda and Morrisons enjoyed 9 per cent growth, Tesco 7 per cent and Sainsbury’s 6 per cent.

The big quest for deals extended to freezer centres too, which saw an 11.3 per cent growth, and all that slightly suspect talk about buying local led to a 15.9 per cent rise in sales of farm foods.

It does go to show that these days we are less accepting of price changes. In the 1970s we accepted prices hikes, and just forked out the money with a sigh. Now we let our feet, and indeed car, do the talking and shop elsewhere.

Incidentally, the latest TNS data showed a 4.4 per cent market share for the Coop and a 3.8 per cent share for Somerfield. You may know the Coop has bought Somerfield. The move will take the merged retailer into a comfortable fifth spot, behind Morrison, with 11.1 per cent market share.

July 2, 2008 | posted by Michael Baxter in High Steet | comments (1) |

Last year’s two big success stories on the High Street were John Lewis and Marks and Spencer.  And while all around others were moaning, the big two kept announcing surging sales.

Well, not any longer.

Recently, we told how sales at John Lewis fell 4.4 per cent over the last year.  Now the figures from Marks are out, and they are even worse.

During the last three months, underlying sales at Marks were down 5.3 per cent.

It is a little odd, because according to recent data from the Office for National Statistics, retail sales in May had their highest percentage increase since 1986.  Can you see why not everyone believes the ONS data?

But this was not any announcement of a fall in sales.  This was a Marks and Spencer announcement of a fall in sales.  And that means, time for a purge.

Well, maybe not a purge, but the retailer’s director of food is going.

Like-for-like food sales were down 4.5 per cent and general merchandise sales were down 6.2 per cent.

You can understand why the food business is struggling.   No one can deny the quality of M&S food, but it’s expensive, and right now, people want cheap.

Sir Stuart Rose said: “Pressures on consumer spending and increased competitor pricing and promotional activity, coupled with changes in consumer buying patterns, have resulted in a significantly weaker performance.”

The M&S announcement illustrates perfectly why many think the current inflationary pressures are a one-off.  With wage inflation staying muted, and shoppers clearly determined to find bargains, in some ways the signs point to deflation.

It is just that, as the Bank of International Settlements pointed out yesterday, it is all very well saying oil and food inflation is an external factor, but the real cause of high oil is high demand, everywhere.

So, on one hand, interest rates need to go up worldwide, but on the other hand, they need to go down in the UK to drive up waning domestic demand.

June 26, 2008 | posted by Michael Baxter in High Steet | comments (0) |

per cent

There is no doubt about it, there is something strange in the neighbourhood.

The ONS had retail sales in May rising at their fastest year on year rate since 1986, yet all around there is gloom.   So how do you square ONS data with anecdotal evidence.   Who is right?  Who are you going to call?

Answer:  the CBI.

The CBI has just released its distributive trades survey for June.  Thirty nine  of retail respondents to its survey reported that in the first half of June sales were lower than a year ago, while 30 per cent said sales had increased.

The resulting balance is minus 9 per cent. 

Now it had been worse than that.  It was worse last month, and the month before, but that aside you have to go back to March 2006 for the last time the index was so bad.    More to the point, the CBI index has been negative for three months in a row now.

That said, 2005 was minus scores for most of the year, so really the key will be what happens over the next few months.

The ONS finding for May was perhaps something of a freak, but what is clear is that right now the High Street is bad, but apparently not that bad.  Although it does appear the big supermarkets are clearing up, at the moment.

Andy Clarke, the new chairman of the CBI’s Distributive Trades Panel, and Retail Director of Asda, said:

“High fuel prices and concerns about the economy have blunted consumer appetites, and those retailers linked to the housing market are continuing to endure difficult conditions.

“Grocers have had another strong month, and we are seeing people spend more in supermarkets as they focus on the essentials and also upgrade to higher value food ranges instead of having a night out.”

June 23, 2008 | posted by Michael Baxter in High Steet | comments (0) |

Well, May saw the biggest year-on-year rise in retails since 1986 – or so official data says (see Friday’s issue) – but John Lewis isn’t seeing any of it.

2007 was the year of John Lewis.  Come to think of it, the noughties has been a pretty good time for the store.   While all around there was woe, John Lewis boomed.

In fairness, John Lewis had a lot of catching up to do.    Ten years ago it was closed on Sundays and Mondays and didn’t take credit cards.  It felt like it was run for the pleasure of the staff who are its shareholders.

These days it’s different.    So what do you get when you have a superb brand name, a network of large stores and an improved worth ethic?  Answer – surging sales.

Maybe the company’s good spell was really down to unleashing potential that had been under lock and key for years.

Or maybe not.  Maybe John Lewis has found a magic formula.

Well, if that is so, the formula seems to need a bit more work.  Sales at the department store chain fell 4.4 per cent over the last year.

“Saturday in particular was a challenge with fine weather and concern about the fuel drivers’ strike combining to drive down footfall in the regional shopping centre branches,” it said.

Not everyone was convinced by the ONS figures last week showing the surprise surge in retail sales.   And they will point to the John Lewis performance as evidence that the ONS got it wrong.

On the other hand, the ONS put the good performance down to a sunny May this year, compared to a wet May last year.  Meanwhile, John Lewis saw sales of electronics dip, but fashion was up 3 per cent.  This is not incompatible with the ONS finding.

Maybe our thirst for fashion will be the last thing to go.  

June 20, 2008 | posted by Michael Baxter in High Steet | comments (0) |

Retail sales in May saw their biggest monthly rise since 1986.   

Let’s run that past you again.  House prices are in free fall, banks are announcing write-downs and rights issues with gay abandon, oil is shooting up, inflation is up; but our wages are not keeping pace, Mervyn King talks about real income falling, a credit crunch is supposedly strangling the life out of the economy, more and more economists are warning recession could be around the corner, and the High Street had its best month-on-month rise in 22 years.

The last time sales jumped that fast, Bobby Robson was manager of England, Jason Donovan and Kylie Minogue got married in Neighbours, and Tom Cruise was messing about with Migs in the film Top Gun.

How can this be?

“Sales by small and medium businesses show continued strength,” said the Office for National Statistics.   “In March to May the value of sales for all retailing was 4.2 per cent higher than in the same period a year earlier; sales by predominantly food stores were 5.4 per cent higher; sales by predominantly non-food stores were 2.8 per cent higher and sales by the non-store retailing and repair sector were 7.4 per cent higher than a year earlier.”

The rise in sales was put down to the good weather in May.  Good weather in May! Have you been outside much lately?  Sure, May had a week or so of good weather, but it wasn’t that exceptional..  It wasn’t the warmest May since 1986.  And it has rained a fair bit too.

The figures are at complete odds with findings from the CBI.   Its Distributive Trade index showed a reading of minus 14 for May.  Last month was worse than that, but April aside this was the worst reading since February 2006.

Then again, the British Retail Consortium was slightly more in line with the ONS data.  It recorded a 1.9 per cent rise in like-for-like sales on last month and a 4.6 per cent rise on a year ago.

The Telegraph chose to focus this morning on how unbelievable these figures are.  It quoted Philip Green as saying the data was bizarre.  He said: “These figures in no way reflect the current trend. They are totally misleading. I have no idea where they collect this information from. I’d love to know. Can I join the club that is seven points up in May?” 

The Telegraph also had a word with Sainsbury’s Justin King, who was equally perplexed: “The ONS doesn’t appear to understand how people shop…These figures are based on a small basket and exclude promotional activity.”

Even Charles Bean, the man being promoted to the post of deputy governor at the Bank of England, seemed puzzled, although he couched his words in econ speak. “The retail sales numbers do look somewhat stronger than really a raft of surveys,” he told the BBC.

Capital Economics said: “Given the backdrop of sharply rising inflation and plummeting confidence, we continue to think that the official sales figures should be taken with a pinch of salt. Indeed, the CBI retail sales survey and the official figures have recently diverged sharply.”

In complete contradiction to the reports saying the figures were unbelievable, others worried that they signified inflationary fears must be stronger than ever.  Ian Kernohan, economist at Royal London Asset Management told the BBC:  “Unfortunately this ’shop till we drop’ attitude will sow the seeds of its own demise. The risk of rate rises followed by a recession has just gone up.”

And the BRC’s Director General Stephen Robertson, perhaps with half an eye on the Bank of England and worried the data would prompt a rise in interest rates – the last thing BRC members want, said: “These official figures confirm our own findings that retail sales growth was lifted by the final arrival of warm weather in early May. As the sun came out so did shoppers, boosting sales of summer food and drink and particularly clothing which had been struggling.

“However, the economic fundamentals remain weak. Much of this sales growth is the result of discounts and promotions and people are still reluctant to buy more expensive items, such as furniture and electricals.

“Personal finances are under severe and mounting pressure. Customers are concerned about jobs and the housing market. So it remains to be seen whether this sun-driven boost is sustained over the coming months.”

The Bank of England, itself, seems more interested in surveys. And puts more credence on what the BRC and CBI are finding than the official data.

But how can the ONS have reported such sharp rises?

One possibility is that the data is wrong.     Maybe it doesn’t place enough emphasis on the so called BOGOF deals – buy one get one free.

Others say sales and specials have encouraged shoppers to spend more.   In other words, bargains were behind the May surge.  If that is so, then explain these recent comments from the CBI: “The prices of goods in the year to May increased at their fastest rate in 16 years, as many retailers passed on the growing pressures of rising energy, food and raw material costs.”

Another possibility is that all the doom and gloom doing the rounds is wrong.  The Bank of England is dead right, falling house prices don’t mean falling sales on the High Street. If that is right, then inflation really is a danger, and the Bank of E will need to up interest rates fast.

Here is another theory. Data from the Council of Mortgage Lenders, out yesterday, revealed that gross mortgage lending fell slightly from April.  This is a surprise too, but is largely explained by the market for re-mortgaging still apparently in buoyant shape.    A CML statement said: “The re-mortgage market remains on track to meet our forecast for growth this year, demonstrating the resilience of the market despite recent bad news. However, by comparison, the next few months will remain very weak for house purchase activity for the funding reasons which are now well rehearsed.”

In other words, if you want a loan to buy a house, that is tricky.  But if you want to re-mortgage, that is not so bad.

Maybe consumers have been topping up their mortgages, and spending some of the money.  If so, May saw no more than a kind of last hurrah, because, as house prices fall, this option will no longer exist.
 

May 23, 2008 | posted by Michael Baxter in High Steet | comments (1) |

It’s a little odd, isn’t it?

Of the three major indices for tracking retail sales, you have got two saying things are pretty dire, and one saying well, actually they are not too bad at all.

The thing is though, the index which boasts the most favourable findings is the official data, so that’s all right then.   When in doubt, trust the Office for National Statistics – and what a relief.  In the three months to April, retail sales were 1.5 per cent up on the previous three-month period.    Okay, sales were down in April, but only by a tiny 0.2 per cent; besides, the bad weather probably explained that, anyway.

Relax, the crisis is not spreading to the High Street.

It is just that this is not what the retailers are saying.  Recently, the most successful British retail entrepreneur of the lot, Philip Green, said conditions were the toughest he had ever experienced.    Okay, M&S posted a healthy £1bn profit recently, but even for them the prognosis is not so good.

Unless your name is Tesco, or one of the other big three supermarkets, and possibly, unless your name is John Lewis, it appears retail is not a good place to be right now.

Yet, the ONS has the High Street staying steady.

The ONS reports that in April, household goods retailers saw sales jump 4 per cent.   Surely that can’t be right – when the property market is in such a mess you would expect household goods retailers to be suffering too.   Recently, ScS, one of those furniture retailers with those large out-of-town showrooms, had sales falling 11 per cent in April.

Even the Bank of England seems puzzled.  The latest minutes from the MPC committee said: “According to the ONS, retail sales volumes had fallen by 0.4 per cent on the month in March, but that still left volumes 2.0 per cent higher for the quarter as a whole. Survey data from the British Retail Consortium and the CBI reported much weaker growth in sales. Reconciling these rather different pictures remained difficult.”

But then the Old Lady’s rate setting committee seemed to go all bearish: “But surveys were giving a uniform signal and were consistent with reports from the Bank’s regional Agents and consumer confidence measures,” said the Minutes.   “So it seemed sensible to place more weight than normal on these indicators relative to the official data in assessing the current state of consumer demand.”

So, in other words, the ONS might have things looking rosy, but no one seems to believe them.

The same applies to ONS data on inflation.  Recently, Justin King, head honcho at Sainsbury’s, lambasted our official compiler of statistics for over-stating food inflation.

“They’re over-reading because they do not pick up the pricing activity of grocers fighting hard for market share and sales growth, they don’t pick up promotional activity – the market is much more promotional and has been now for six to nine months… and I don’t think they pick up things like vouchering activity,” King said. “Real inflation and therefore the real challenge in household budgets is perhaps less than is being reported.”

So does it matter?

The answer is yes, but if you listen, then it doesn’t matter so much.

Official data always seems to lag behind reality.    This is a problem because government policy is often based on official data.    This is not new.  The boom–bust cycles of the past were in part made worse because governments were behind the curve.   In reacting to data that was out of date, they pumped gas into the economy when they needed to be slowing things down, and slowed the economy when it needed gas.

Of course, the economic victory of the last few years was supposed to have been that our Gordon had licked boom and bust.

The reality, though, is far from that.  But before policy makers can lick the economy back into shape, they first need to find statistics they can believe in.   Maybe the key is to listen to what people are saying – and to take heed of anecdotal evidence.

May 15, 2008 | posted by Michael Baxter in High Steet | comments (1) |

In the land of the supermarkets, opportunity still reigns.  Both Tesco and Sainsbury’s made announcements yesterday to make you forget all the woe.

For Tesco, the big news is another move into Asia, this time South Korea.    In fact the retailer has been in Korea for nine years now, and apparently its Tesco Homeplus is the second largest chain of discount stores in the country. 

Now it has forked out just shy of £1bn and has bought 36 new discount stores from E-Land. 

Tesco’s plans in the US are, by all accounts, below target at the moment.  Its Fresh’n Easy experiment was always going to be a bold move, and any kind of retail venture in the US in 2008 was always going to struggle.  Then again, in times of hardship cheap quality food can do well.  Tesco’s US venture is struggling because US consumers are used to old fashioned service in their convenience stores.  But in times like these, price matters, and that where Tesco scores. 

As for South Korea, Terry Leahy, the boss of the company which says “every little helps,” reckons the country’s grocery market is worth £50bn annually, so there is plenty of room in the tank for more expansion.

By contrast, Sainsbury’s big announcement was a local affair.

You may recall, not so long ago, its then new boss, Justin King, announced a three year plan to turn the company around.  Well, would you believe it, that was three years ago now.

Sales were up 5.8 per cent to £19.2bn in the year to 22 March, while pre-tax profits came in at £479m from £477m last year. Okay, that is not exactly a runaway success, but considering the economic environment, it wasn’t bad.

Mr King also brought back memories of Mao Tse-tung.  The former Chinese premier once said that “a journey of 1,000 miles begins with a single step.”  Well yesterday, in response to the question, is Sainsbury’s great again– something which was initially stated as the aim of that three-year plan, Mr King said, “Greatness is a journey, not a destination. We are much better than we were three years ago.”

Mind you, impressive while the recovery at Sainsbury’s has been – up to a point, at the outset we were told it would regain the number two spot in the supermarket lead. Even Asda admitted this was likely, yet the latest data shows Asda’s lead has barely been affected at all.

For right now the number two supermarket is still “Asda priced.”

May 8, 2008 | posted by Michael Baxter in High Steet | comments (0) |

The official announcement should be made later today, but if the talk is right, Carphone Warehouse is set to announce a £1.1bn investment from US retail giant Best Buy.  The expected announcement would appear to quash rumours that its boss Charles Dunstone was ready to step down, but, more to the point, could leave Carphone beautifully poised to take advantage of the credit crunch.

Opportunity is when others are panicking.  While it is obvious that fortunes can be lost during economic downturns, they can be made too.   At least a part of Google’s success can be put down to the dotcom crash – since it was able to pick up server technology at knock-down prices.     For that matter, AT&T’s meteoric rise from 100 or so years ago, occurred after a crash in the bubble for providing telegraph wires across the US.  Too many were laid – it was unsustainable, and with all that cheap infrastructure, AT&T threw itself onto the corporate stage.

Warren Buffett understands this, which is why he recently announced plans for a big investment spree.

Alas, regulators don’t, and will often force pension funds to sell equities at the time of a falling market.

This is the time when some companies could put in place the means to clean up in their market place.  And maybe Carphone Warehouse could be such a company. Its boss is one of those types who can charm the press.   A couple of years ago the company stared PR disaster in the face – with its move into broadband via the Talk Talk service.      Programmes such as Watch Dog saw blood, the consumer backlash, as the company’s failure to live up to its promises threatened to engulf it, but Mr Dunstone showed how to handle crisis. He put his hand up, “It’s my fault,” he said, “I underestimated demand,” and the press turned from would-be executioners to social workers, as they sided with the British entrepreneur. 

But the consumer electronics market is oversaturated.  Satiated consumers can not keep up. We may be ready to migrate to new technology every ten years or so, but the rate of change in consumer electronics is leaving most of us breathless.   LCD TVs which would have cost an arm and a leg two years ago, are now going for prices you can count on the fingers of one hand. 

This is bad news for manufacturers, but for retailers, falling prices at a time of massive supply could be good.  

Okay, admittedly Currys is not exactly doing a fine trade at the moment, but in the US the Best Buy stores are amongst the few US retailers to be announcing improvements in like-for-like sales. And that’s the idea for Europe – new consumer electronics stores – across Europe, typically of similar dimensions to mid-sized supermarkets.  Best Buy and Carphone Warehouse are jumping into bed, with a joint venture to replicate the US Best Buy business model.

Maybe Charles Dunstone has hit the nail right on the head.    He reckons we are confused – and that’s where the new venture will come in.   Computers are talking to each other –  computers and consumer electronics products are becoming the same.   There are products such as the BBCi player, to be launched soon, which will be designed to facilitate watching TV programmes downloaded from the Net in your living room.  

The Internet is moving into the living room – maybe the kitchen too, and that’s where Dunstone sees the opportunity.

Carphone itself will keep its broadband business separate from the deal, and the £1.1bn welcome is very handy, both to pay off debt, and to fund buying at a time when companies are cheap.  

Talk is Dunstone has his eyes on Tiscali – no doubt, thanks to the credit crunch, he will pick up the company for a bargain – you can imagine the headlines now:  “I know, a broadband company for just £….”