2 June 2008
High street activity dropped for a second consecutive month in May, while retailers put prices up at the fastest rate since 1992, the CBI has said today.
The latest Distributive Trades Survey also revealed that although retailer confidence and the outlook for jobs have worsened slightly this month, high street sales are expected to improve in June.
Asked about their year-on-year sales volumes, 28% of retailers said they had increased, while 42% said they had fallen. The resulting balance of -14% was in line with retailers' expectations and is less severe than the net -26% reported last month. Sales are expected to recover slightly in June, by a balance of +6%.
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. A balance of 56% of firms said that average selling prices had increased, which is the strongest since May 1992 (+57%). A similar rate of price rises is expected next month (a balance of +52%).
The three-month moving average of sales volumes, which smooths out blips and monthly volatility, continued its downward trend to a balance of -13% this month. Meanwhile, sales for the time of year were seen as poor by a balance of 25% of firms.
This weaker demand is also reflected by retailers sharply cutting back orders placed with their suppliers (a balance of -23%), and a strengthening in stock volumes, where a net 22% of firms said levels are high relative to expected demand.
Grocers, including major supermarkets, had a strong month, with a balance of +51% reporting year-on-year growth. Clothing sales stabilised (+3%) following a poor April, and footwear and leather retailers had another successful month (+51%).
Those shops selling big-ticket items linked to the housing market had another difficult month, as retailers of durable household goods and hardware, china and DIY all reported falls in sales volumes on a year ago. Business in the furniture and carpet sector was particularly weak (a balance of -84%).
Job cutting in the sector continued at a moderate rate but is expected to worsen slightly in June. A balance of 17% of firms expects business conditions to deteriorate over the next three months, which is the weakest since November 2005. Although investment intentions for the year ahead are negative, they have recovered from the sharp cutbacks planned in the previous quarterly survey.
Ian McCafferty, CBI chief economic adviser, said: "The high street has faced another testing month as consumer spending power has been hit by the rising cost of fuel and food, as well as any credit crunch worries.
"It is encouraging that retailers can see some recovery in sales next month, but they are not optimistic about the business outlook, and retail conditions are likely to remain tough.
"Supermarkets and grocers have had a good month but, in a sign of the times, those selling specialist foods have been hit as consumers cut back on luxuries. Likewise, sales are falling in sectors closely tied to the housing market, such as those selling furniture and white goods."
Wholesalers reported strong sales for the second month running (a balance of +50%), and orders with suppliers were also strong. Both are set to be flat next month, however. Average selling prices grew at their fastest rate (+77%) since February 1990 (+83%), and a similarly strong rate is expected in June.
Sales volumes in the motor traders sector grew strongly for a fourth consecutive month (+30%), but firms expect this run to end in June with a sharp contraction (-20%). Average selling prices continued to rise firmly.
