Retail sales values were 0.6% down on 2010 figures in October, as consumers shied away from bigger discretionary purchases, the British Retail Consortium (BRC) said on Tuesday.
Total sales were up 1.5%, compared to a 2.4% increase in the previous year. Adjusted for inflation - now running above 5% - this means that volumes and values may have fallen in real terms.
Non-food sales softened, with big ticket items hit hardest. An unusually mild warm start to the month saw clothing and footwear suffer, and the homeware segment was "tough and often deal-driven", the BRC said.
The weak performance of the retail sector was highlighted on Monday, when the US electronics chain Best Buy announced that it was to pull out of its UK operations, putting 1,000 jobs at risk. The company had planned to open 100 stores in the UK in a joint venture with the Carphone Warehouse, before spreading across Europe. However, difficult trading conditions and slow growth in both the UK and the continent saw it first curtail its ambitions, then look to exit entirely. The company, like many others, is to reorient its business to focus on higher growth emerging markets.
"It’s clear customers are cutting back whatever they're buying, Stephen Robertson, the BRC's director general. “A lasting lift in consumers' mood needs a sense that better times will come for jobs, costs and incomes. The Chancellor should use this month's Autumn Statement to help customers and businesses by offering hope over next year's planned fuel duty and business rates increases.”
Helen Dickinson, head of retail at KPMG, added: “To whatever extent sales are being made, margins and hence profits are being impacted to stimulate demand as retailers strive to cope with the new reality. The success of the Christmas season for retailers hangs in the balance as October’s results do not set a strong foundation.”
With more than 60% of the UK's economy based on consumer spending, a weak fourth quarter would heighten the chances that the country could slide back into recession.
Howard Archer, chief UK and European economist at IHS Global Insight, said that the next few months could see consumers and retailers holding off on making decisions on purchases and discounts, respectively.
"Retailers will be desperately hoping that consumers loosen their purse strings over the critical Christmas spending period to have a good time after a difficult year. However, it is hard to be optimistic about the prospects for consumer spending," he said.
"Given the pressure that consumers are under, will retailers be aggressive in their promotions or discounting as the critical Christmas shopping period develops, particularly if their sales get off to a slow start? And will a substantial number of consumers delay their Christmas purchases to try and get bargains nearer the big day, in the belief or hope that struggling retailers will increasingly engage in discounting and promotions to generate sales?" he added. "With neither consumers nor retailers in a strong position, it may come down to who blinks first."