Retailers Feel Pain Of Rain And Recession
LONDON (Reuters) – The economic impact of sodden summer was laid bare on Thursday by dire news from major retailers showing that torrential rain had hurt already weak demand in an economy showing few signs of pulling out of recession.
Shops selling everything from home-improvement items to sportswear and goods for mothers and babies were hit.
Official retail data also indicated that celebrations to mark Queen Elizabeth’s Diamond Jubilee failed to provide the much hyped and hoped-for boost to spending, raising the question of whether the London Olympics will get the shop tills ringing.
Britain has not fully recovered from the 2008/2009 crisis that has left many Britons’ worse off and ripped a deep hole into public finances. The economy fell into its second recession in four years around the turn of the year.
Although inflation is easing and unemployment falling ongoing government austerity measures and turmoil in the euro zone are hurting Britons’ morale and spending power.
Prime Minister David Cameron will have done little to lift the mood when he said in a newspaper report that Britain’s programme of spending cuts could last until 2020.
“I can’t see any time soon when … the pressure will be off,” he said in an interview with the Daily Telegraph.
Daniel Ward, a 26-year-old glazier, walking near Liverpool Street Station in central London, illustrated the British consumer’s state of mind.
“I’ve been spending less in the past few months because I haven’t got the money. I’ve got a mortgage and my girlfriend just got made redundant so I haven’t got any spare money,” he told Reuters.
The government remains under pressure to get growth going despite taking steps to get credit to businesses flowing and to boost infrastructure investment. The Bank of England may yet pump more money into the economy.
The wettest April to June period since records began exacerbated an already grim situation for retailers, hitting sales of goods ranging from barbecues to bicycles to football shirts.
The Office for National Statistics said retail sales rose by just 0.1 percent on the month, well below economists’ forecasts for an 0.6 percent increase.
Between April and June, retail sales were down 0.7 percent, the sharpest quarterly drop in over two years.
With household spending accounting for two thirds of UK gross domestic product (GDP), the reluctance of consumers to spend compounds fears about Britain’s recovery with economists now predicting another contraction in the second quarter.
“This release does not bode well for overall growth and provides further evidence that GDP probably fell in the second quarter,” Nida Ali, economist at the Ernst & Young ITEM Club said.
Britons’ real incomes were still declining despite the recent sharp drop in inflation as wages barely grew, she said.
There was gloom across the retail sector.
Shares in Kingfisher, Europe’s biggest home improvement retailer, fell 1.5 percent after it said underlying sales fell 0.4 percent in the 10 weeks to July 7, the bulk of its fiscal second quarter.
That represented a pick-up from a first quarter fall of 4.8 percent, but reflected price cuts at its B&Q business in the UK and Ireland to clear gardening stocks as well as other promotions. That will hit B&Q’s profit margins.
“The unprecedented wet weather across Northern Europe has continued throughout our second quarter so far, clearly impacting footfall and consumer demand for outdoor and seasonal products,” said chief executive Ian Cheshire.
Shares in sporting goods retailer JJB Sports tumbled 28 percent after the firm warned it was running into funding problems again and was in talks with strategic partners.
JJB, which issued a profit warning last week on the back of poor sales of Euro 2012 football shirts, also reported an 8.7 percent slump in first half underlying sales.
Halfords, the bicycles to car parts retailer, parted company with its chief executive of four years, David Wild, as it posted a 5.6 percent fall in underlying sales over its first quarter to June 29.
Halfords warned on year profit as it expected underlying sales to keep falling. Its shares, down 45 percent over the past year, rose 8 percent on the back of Wild’s exit.
Mother and baby products retailer Mothercare reported a 6.7 percent fall in underlying UK sales over its first quarter to July 14, highlighting “challenging trading conditions”.
But some retailers are coping well, despite the weather.
Sports Direct, Britain’s biggest sporting goods retailer, posted a 17 percent rise in annual profit, while kitchen supplier Howden Joinery reported an 8 percent rise in half-year profit.
And for others the unseasonably cold and wet weather can help.
John Lewis, Britain’s biggest department store group, has enjoyed stellar trading this summer as the deluge of rain has driven footfall from the high street to the covered shopping malls where its stores are often located.
– By James Davey and Sven Egenter
(Reporting by James Davey; additional reporting by David Milliken, Rhys Jones, Sarah Young Karen Rebelo and Sophie Kirby. Editing by Jeremy Gaunt.)