Heavy discounts create December rise in retail sales

Figures from the Office for National Statistics (ONS) have revealed that UK retail sales rose between November and December 2011, and were higher than in December of 2010. The ONS figures suggest that the rise in retail sales was largely due to the heavy discounts offered by many high street stores during the period, as well as the mild winter weather.

December 2010 brought heavy snow and was thought to impact on retail sales as people stayed indoors and avoided the high street. In December 2010, the ONS figures showed that retail sales had risen by 2.6% compared to the previous year, as customers took advantage of the many high street discounts. These figures equate to a rise in spending to a total of around £42.1 billion compared to December of 2010.

Clothing and footwear sales were were the biggest performers, showing a 6.3% rise on the previous year’s figures. National companies such as ASOS and John Lewis reported strong sales figures, and discount shops such as Poundland also performed particularly well.

Sales of household goods fell by 2.4%, with high street electronics retailers, such as Dixons and Comet, reporting a sharp fall.

However, some other retailers performed worse. Tesco were forced to issue its first profit warning in 20 years, whilst Peacocks and Blacks Leisure both went into administration. Blacks Leisure have since been bought by JD Sports, but 9,600 of Peacocks’ employees face a much more uncertain future.

The ONS figures also revealed that smaller retailers (measured as businesses with under 100 employees) had performed better than the larger, national companies. They reported a rise in sales as high as double the rate of the bigger companies.

Online sales fell between November and December, but it is thought that this because online customers purchased their goods early in order to receive them in time for Christmas.

Some experts warn that whilst the retailers saw a rise in sales, they had to suffer a loss in the profitability of those sales. An expert from KPMG, an accounting firm, warned that this may also have seriously damaged the health of the retail sector.

Low wage rises and high inflation have had a big impact on people’s spending power and most economists warn that 2012 will be another tough year for retailers.

A spokesperson from IHS Global Insight said: “The risk remains that pressurised and worried consumers will put away their purses and wallets and hunker down for an extended period, after a late flurry of spending in the run-up to Christmas and then taking advantage of the best of the bargains in the clearance sales.”

Other experts indicate that the figures will back up predictions from the Bank of England that inflation will fall throughout 2012. Official figures have also indicated that this is starting to happen, with the Consumer Prices Index falling from 4.8% to 4.2% and the Retail Prices Index falling from 5.2% to 4.8%.