The High Street is set to enter a crucial phase. Wednesday just gone was that day when the quarterly rent on High Streets across the land was due. You don’t need to be especially smart to know that some retailers will struggle to pay. Expect trouble ahead as we discover which retailers actually defaulted and were forced under as a result.
Meanwhile, retailers are stuck between a rock and a hard place. The recent falls in the pound mean that, inevitably, the costs of products imported from abroad are rising, and yet, in recession Britain, consumers are cutting back.
So, the marketing departments may say ‘we need to cut prices’, but the finance departments may say ‘we can’t afford to’.
No wonder Next is sticking to its guns and refusing to discount, this despite a recent 14 per cent fall in pre tax profits revealed this week.
But how is all this showing up on the High Street. The last few days have seen the release of two of the main High Street indicators.
According to the latest data from the Office for National Statistics, retail sales in February were down 1.9 per cent on the month before.
Actually, it is a little odd. Recently, official stats have been much better than most were expecting. January saw sales rise by 0.8 per cent on December, which itself was up 1.9 per cent on November. And these are seasonally adjusted figures, by the way, so don’t try and explain the rises away with seasonal factors such as Christmas.
So actually, the challenge isn’t so much in explaining February’s fall, but why sales were rising previously. On an annual basis, High Street sales are still up on last year – but only just. The annual rate of increase was 0.4 per cent.
These figures relate to volume of sales, by the way, so the rises could partially be explained by price discounting.
These days, analysts are attaching more and more credence to the monthly survey of our High Street produced by the CBI.
The latest distributive trades survey from the CBI showed that during the first half of March, no less than 63 per cent of retailers said sales volumes were down on last year. Just 19 per cent said sales were up, yielding a balance for the index of minus 44.
Only during a three-month period last autumn has the index been lower during this crisis.
Just as worrying, the expected sales balance fell from minus 33 to minus 42.
There is a school of thought which says, once retailers have finally shifted their backlog of stock, and start re-ordering, they will have no choice but to up prices in order to cover their extra costs caused by the cheaper pound.
So, moving forward, we may simply see less goods for sale, but at higher prices, creating inflationary pressures.
But, this depends on two things. Firstly, inflation is not a one off rise in prices, it is continuous. The recent fall in sterling should, theoretically, lead to a one off rise in prices. But that is not the same thing as inflation. But if sterling continues to fall, then, and only then, will retail inflation become a worry.
Secondly, the fall in the pound should theoretically encourage a rise in domestic supply – as more indigenous producers find they have become price competitive.
© Investment & Business News 2013