Traditionally UK retailers expect sales in the fourth quarter of the year(Q4) to be significantly boosted by pre-Christmas shopping and by year end sales.
However, according to figures released on January 21 by the Office for National Statistics retail sales volumes dropped 0.8% in December compared with November. It was said to be the weakest annual performance for any December since records began in 1988.
Among those that have already reported sales drops are Clinton Cards, with sales down by 2.1% in the last five weeks of the year, and Mothercare posting a drop of 4%. HMV reported falls in December sales of 10% in the UK and 13.6% in Ireland and issued a profit warning. Next said it had lost £22 million in Christmas sales.
Many blamed the three weeks of December snow that seized up the UK’s transport system and even online shopping options were no help because many distribution services were unable to guarantee pre-Christmas deliveries.
Sainsbury’s, however, reported sales up 10.1% for the four weeks to December 25, compared with the same period in 2009.
The Q4 figures and further retail results may show that there has been some late-December cheer as consumers rushed to beat the January 4 VAT increase, from 17.5% to 20%.
But it is looking as if the end of year boost the retail sector traditionally relies on may not have quite materialised for most and may have left them less well placed to face the difficult trading conditions expected in 2011.
The most difficult issue facing retailers will be maintaining their profit margins. Margins may have been propped up in December-January by the rush to beat the VAT increase, especially on the larger items but commodity prices on basics like cotton, wheat, rice, maize and sugar are expected to continue to rise thanks to global financial speculation.
Without a fundamental examination of the business, cost cutting (wages, premises, equipment etc) may not be sufficient for survival in current conditions.
Perhaps a high street retail presence is no longer sustainable and more fundamental and innovative solutions, such as moving the emphasis to online selling, may be the only way some retailers can survive.