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Retailers disappointed by weak New Year sales

The UK high street reported a slight fall in year-on-year sales in early January, disappointing retailers' predictions and ending a three-month run of sales growth, the CBI said today.

GENERAL MERCHANDISE

Retailers disappointed by weak New Year sales

The UK high street reported a slight fall in year-on-year sales in early January, disappointing retailers' predictions and ending a three-month run of sales growth, the CBI said today.

Responding to the CBI's latest Distributive Trades Survey, 28% of retailers said that the volume of sales in the year to early January had risen, while 36% said it had dropped. The resulting balance of -8% was weaker than predictions made last month of sales being broadly flat on a year ago (-2%).

The weak sales during the traditional 'New Year sales' period are likely to have been influenced by the UK's extreme cold snap, which coincided with the survey span of January 4th to 15th. The rise in VAT may also have deterred consumers from big-ticket items.

Looking ahead to February, retailers expect that sales will be largely unchanged on their levels of a year ago (-1%).

The three month moving average of sales volumes (a balance of +6%), fell back from November and December's levels, though remained higher than earlier in 2009.

Sales were described as poor for the time of year by a balance of 22% of retailers, which was weaker than December (-16%), while a net 8% expect sales to remain below seasonal norms in February.

A balance of 8% of retailers said the volume of orders placed on suppliers fell, which echoes the drop in sales volumes and was worse than expected. In February orders are expected to remain broadly unchanged on a year ago (-3%).

Stock levels rose in relation to expected demand, with a net 13% saying they were more than adequate to meet demand. However, stock adequacy has remained below its long-run average for the ninth consecutive month.

Turning to individual retail sectors, grocers and footwear & leather retailers were the only sectors to see strong annual sales growth. Sectors linked to the housing market suffered a reversal of fortune. This was particularly noticeable for big-ticket items, with sales volumes in durable household goods and furniture & carpets dropping after three consecutive months of growth.

Andy Clarke, Chairman of the CBI Distributive Trades Panel, and Chief Operating Officer of Asda, said:

"2010 has opened on a weak footing, especially compared to the tail end growth of 2009, but the picture should stabilise in February. While grocers and shoe shops had a good start to the year, it has been slightly disappointing for the sector as a whole.

"The big freeze kept many shoppers away from the January sales and the VAT hike has hit bigger purchases like furniture and electricals.

"Also many retailers were much more aggressive in their discounting last January, which could partly explain why sales have slipped a bit this year.

"Overall, the recovery through 2010 is likely to be tentative and weak with a long road to recovery, and consumers are still cautious about spending."

Sales volumes in the wholesale sector fell sharply (a balance of -38%), although sales are predicted to increase slightly in February (+9%). Industrial materials and agricultural machinery wholesalers had an especially difficult month, while clothing, textiles & footwear was the only sector to report marginal sales growth.

Motor traders' sales volumes fell unexpectedly in the year to January (a balance of -33%). A balance of 40% of firms expects sales to fall once again in February, with orders to suppliers also cut back.

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