High street shops face a profits squeeze going into the Christmas period as intense competition and tighter family budgets force retailers to cut prices, according to the CBI’s quarterly retail report.
The distributive trades survey of 130 firms found that a majority expect conditions to improve over the next three months with many employing more people and increasing investment in line with the modest upward trend set over the past year.
But shop owners are braced for a long period of intense price competition that kicks off this week when the US flash sale phenomenon known as Black Friday is given an even bigger push in the UK than previous years.
Barry Williams, CBI spokesman and Asda’s chief merchandising officer for food, said: “It’s no secret that it has been a demanding year for the retail industry but shopkeepers haven’t been pulling their punches when it comes to getting shoppers through their doors – borne out with the lowest essential item inflation in five years and growing online sales.
“This latest survey shows many have been winning some rounds in what has been one of the most challenging years for both the industry, and for customers.”
The CBI said the strongest growth in sales volumes was among grocers and retailers selling furniture, carpets, hardware & DIY kit in the three months to November. “Growth in orders placed with suppliers was below expectations but is expected to pick up again next month,” it added.
The rise in employment across the retail sector is anticipated to be the fastest since May 2002 when figures are published for the year to December.
Retailers said they expected to see consumers spending more freely following “encouraging signs that pressure on family budgets is letting up”, and signals from the Bank of England that interest rate rises are a more distant prospect.
Williams said: “With prices under pressure and more firms adopting US-style Black Friday offers, retailers are expecting a festive boost next month and are certainly doing their best to put smiles on customers’ faces and make it easy on their pockets.”
Black Friday originated in the US, where stores discount goods the day after Thanksgiving. The UK version on 28 November is being promoted by most chains, including Asda, which is a subsidiary of US supermarket giant and so-called godfather of Black Friday, Walmart.
An easing of pressure on family budgets and the prospect of interest rate rises being delayed until late next year or 2016 will boost sales in the last quarter after a “resilient” year, the CBI said.
The survey found that 44% of respondents reported that sales volumes were up on a year ago, while 17% said they were down, giving a balance of +27% that was slightly below expectations (+31%). Retailers expect sales volumes to grow at an even stronger pace next month (+38%), with 50% expecting them to rise and 12% to fall, said the report.
Richard Lowe, head of retail at Barclays, said: “Healthy demand for household goods and big ticket items led to a robust performance for the sector. Looking forward, more retailers than ever before are predicted to get in on the action for Black Friday and Mega Monday this weekend, with record-breaking levels of sales expected.
“According to recent Barclays research this trend is set to continue, with 69% of retailers stating that Black Friday promotions will continue to increase in popularity and keep the tills ringing in the years ahead,” he said.
