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Online the 'one positive' in gloomy retail market

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The growth in online sales is the one bright spot in an ‘otherwise gloomy’ retail market, which according to new data is now though to be firmly in recession.

That’s the conclusion of the KPMG/Synovate Retail Think Tank (RTT), whose Retail Health Index fell in the second quarter of the year. It lost a point and fell to 84. When a sector contracts for two quarters in a row it is in recession. This quarter's contraction was less severe than the previous quarter, when it fell by one point. The softer fall was, says the RTT, because of the late, sunny Easter and the Royal Wedding.

The body says a ‘mini revival’ in retail health enjoyed during 2010 has “now well and truly reversed”.

Neil Saunders, of Verdict Research, said: “The only good news for retailers in quarter 2 was a sunny late Easter (Easter Sunday on April 24th was the latest for 11 years) and the Royal wedding at Westminster Abbey on Friday 29th April. However, any expectation that they would boost trade for more than a couple of weeks was short-lived. May and June showed how weak the underlying trend remains. Pressure on disposable income with new, recently announced rises in utility bills has only hurt consumer confidence further and clearly many Britons are no longer regarding shopping as the pleasurable experience they once did.”

Richard Lowe, head of retail and wholesale at Barclays Corporate, said: “The rise in online sales and its many variants such as ‘click and collect’ is one positive development in an otherwise gloomy market.”

He added: "Costs are the sleeping giant and we’ve not really seen that monster stirring yet. In the meantime, whilst lending to retail businesses is still fairly healthy across all lenders and all sectors, it’s likely that business plans are now being viewed with far more consideration than was once the case.”

Vicky Redwood, Capital Economics, said: “We expect headline inflation to peak at between 5% and 5.5%, before falling next year. This rise in overall inflation is likely to eat even further into consumers’ spending power. Accordingly, retailers will face a double low of weakening profitability and lower demand.”

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