Retail recovery suffers

As one major retailer faces extinction while others continue to beat the analysts, new figures have dampened hopes of a consumer spending revival.

Retail sales across the UK have endured their steepest fall in nine months, figures published this week show, watering down hopes of a consumer spending revival.

However, despite the additional gloomy news of video games chain Game’s recent plunge into administration, there are some bright spots in the sector.

J Sainsbury, the force behind Britain's third-biggest supermarket empire,this week revealed it had outstripped forecasts for fourth quarter sales growth after extending its market share, impinging on the likes of industry leader Tesco.

The company said sales at stores open more than a year increased 2.6%, excluding fuel sales, in the 10 weeks to March 17. This enabled the firm to beat analysts' average forecast of 2.1% and was slightly higher than its performance in the previous quarter.

"We continue to outperform the market and gain market share," chief executive Justin King told reporters, pointing to the success of Sainsbury's "Brand Match" pricing promotion and sales from its fresh food counters, which he said were "growing faster than at any other retailer."

Similarly upbeat is fashion retailer Next, which this week reported strong annual profits, but said it remains cautious about the road ahead.

The company made a pre-tax profit of £579.5m last year, up 6.2% and in a statement said the outlook for the year ahead was "very uncertain”, with consumers continuing to be squeezed by a lack of credit and the uncertain employment prospects. It forecast that sales would rise between 1% and 4% this year.

Kingfisher, Europe’s biggest home improvements retailer and owner of market-leading chain B&Q, also beat analyst forecasts with a 20% rise in annual profit.

The British group set out plans to open 67 stores this financial year and test new formats aimed at making "do it yourself" easier for customers.

Sales rose 3.6% to £10.8bn in the year ended January 28, with the company stating that: "Whilst the immediate economic outlook remains uncertain, we face the future in robust shape and with our successful self-help approach now embedded in the way we do business.”

But the overall picture is not quite so promising, according to the latest figures from the Office of National Statistics (ONS).

The ONS said retail sales volumes dipped 0.8% on the month to give an annual rise of 1% - both far lower than the forecasts of economic analysts.

The monthly drop was driven by the biggest decline in sales of the "other stores" category since January 2010, with a sharp drop in sales of fine art and antiques leading the decline. January's sales volume growth figures were revised down to 0.3% from 0.9% on the month, with the ONS blaming late data from smaller stores which failed to maintain their previous track of strong growth.

Although in contrast to the latest Next and Kingfisher figures, the ONS report could fuel further concerns about the health of British consumers after major UK retailers had delivered largely positive signs in recent days, save for Game.

The entertainment retails, which has 600 UK stores and a 6,000-strong British workforce, is the latest example of the impact of the ailing High Street and the fallout from exponential growth in online shopping.

Perhaps, in hindsight, Game would have benefitted from heeding the findings of Deloitte’s new report on the changing face of retail.

The Store of the Future report suggests how retailers should respond to these issues, and plan their store strategy in a multi-channel world where the connected consumer is king.

It suggests that as the role of stores changes, retailers will need to think about how they can consolidate and re-shape their real estate portfolios. To remain competitive, retailers may have to reduce their property portfolios by 30—40% in the next five years and adapt what remains to meet the changing demands of consumers.

Silvia Rindone, director in the retail consulting practice at Deloitte and author of the report: “The majority of UK retailers have simply got too many stores. Total floor space has decreased in recent years and this will continue as more and more sales migrate to the internet, with total online sales forecast to reach £43bn by 2015, accounting for 14% of all retail sales.

“Some 22% of people did not buy their last item of clothing or accessories in store and only 9% of customers want to see the full product range in store. Such statistics lend support to the proposition that the trend towards slimmer, smarter retail property portfolios is likely to accelerate markedly as retailers start to accommodate changing consumer behaviours.”