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December Sales Values Rise, But Retail Is In For A Tough 2012

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Figures from the British retail consortium show a rise in retail sales in December, but the jump is more due to discounts and the weather than a change in sentiment
Figures from the British retail consortium show a rise in retail sales in December, but the jump is more due to discounts and the weather than a change in sentiment

The UK's retail sales values in December showed growth over 2010, according to figures released on Tuesday by the British Retail Consortium (BRC), but the jump is more a reflection of better weather conditions, rather than of a meaningful change in consumer sentiment, the group said.

Sales values were up 2.2% on December 2010, the BRC said, with both food and non-food items experiencing growth. However, many purchases were deal-driven, as shoppers took advantage of deep discounting by retailers in the run up to Christmas.

Consumer spending was severely hit in the winter of 2010 as heavy snow disrupted transport infrastructure.

Much of the 2011 upturn was due to a boost in the final week before Christmas, the consortium said, and the large price cuts may see margins hit at retailers.

“A better than hoped-for December closed a relentlessly tough year for retailers, but these figures hinged on a dazzling last pre-Christmas week and were boosted by some major one-off factors. We’re not witnessing any fundamental change in customers' circumstances," Stephen Robertson, the director general of the BRC, said in a press release. 
 
“The comparison is with severe snow disruption a year ago. Discounting was deeper and started earlier and the vital Saturday Christmas-Eve added another big trading day to the final run-up. Post-Christmas offers brought large numbers of shoppers out but that was generally a short-lived hunt for bargains. With discounting driving sales at the expense of margins the key question for retailers is about earnings from those sales."

The "solid" figures have not rescued retail, which had a "miserable" year, Robertson added.

Deloitte, the professional services firm, released data on Monday showing that the number of retailers entering administration in 2011 rose 11% from the previous year. Barratts, Oddbins, Jane Norman, TJ Hughes, Habitat and Homeform all went to the wall, with La Senza and Blacks potentially joining them in 2012.

Lee Manning, restructuring services partner at Deloitte, warned that more may follow as companies struggle to pay bills after a difficult Christmas.

"Many retailers would have been banking on the busy Christmas period to give them a much needed sales uplift, but retailers were forced into discounting at levels last seen in the aftermath of the collapse of Lehman Brothers, putting severe pressure on margins," Manning said.

Figures from Visa, also released on Monday, showed an overall decline in consumer spending in December, on both a month-on-month and year-on-year basis, as inflation, wage stagnation and the weak economic outlook weigh on sentiment.

The BRC's figures should be seen as positive, Helen Dickinson, head of retail at KPMG, said. However, she warned that 2012 will see difficult conditions return.

"The month’s figures saw the strongest growth in food sales of the year as people spent on food for the big day. Clothing and footwear also had a spectacular month. Deals helped consumers finally upgrade winter wardrobes as winter commenced in earnest," Dickinson said. 
 
“Whilst these results must be viewed in a positive light, it must also be noted that they have come at the end of a year which witnessed declines in most non-food sectors and are against December 2010’s weak results, which saw sales badly affected by poor weather. Sadly no-one expects this level of demand to be indicative of the year ahead.”

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