Retail sales rebound

25 March 2010

Retailers are on the rebound, as the high street begins to get back on track after poor consumer spending in the recession and bad weather during the early months of the year.
Retail sales picked up by a stronger-than-expected 2.1% month-on-month in February - the sharpest jump since May 2008. However, January's heavily weather-influenced plunge in sales was revised sharply to 3% from 1.8%.
In terms of individual retailers, Next has reported an 18% rise in profits to £505.3 million for the year to January. Sales soared to £3.41 billion as consumers continued to spend despite the recession.
B&Q owner Kingfisher, meanwhile, beat forecasts with profits of £547 million for the year to January - and raised its dividend for the first time in five years.
Clothing chain Ted Baker also saw pre-tax profits soar 10% to £19.5 million with revenue up 7.2% to £163.6 million. Trading in the UK exceeded the group’s expectations although conditions overseas were tougher.

Calm seas ahead?
Retail bosses and analysts are now predicting that the sector is on the mend although concerns remain over the strength of consumer spending.
Next chairman John Barton says things had panned out well from a poor start with the drop in consumer spending proving much less than expected.
"It was an extraordinary year. At the beginning of the year we faced an unstable economy, falling sales and sterling weakness against both the US dollar and the euro, our main purchasing currencies. In the event the consumer economy has been relatively stable."
However, Kingfisher chief executive Ian Cheshire says he remains "cautious on the outlook for consumer demand across Europe".
Economists were also erring on the side of caution.

Howard Archer, chief UK and European economist at IHS Global Insight, adds: "Despite the relatively decent rebound in retail sales in February, we continue to suspect that the upside for consumer spending - and hence overall economic growth - will be limited in 2010 as households still face very challenging conditions."
And Richard Lowe, head of retail and wholesale at Barclays Corporate, says: "Although overall the market remains flat, it has moved in the right direction."
He says retailers breathed a sigh of relief after Alistair Darling left VAT unchanged at 17.5% in his Budget - although many are expecting a rise after the election.
Next says a rise in taxation would be a "worse scenario" for the consumer.
"Direct taxes will reduce consumer spending, indirect taxes are likely to be inflationary. So the outlook for the economy (and therefore for retail sales) remains dependent on policy decisions and their timing and, as yet, we have little certainty as to either," the company explains.

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