Retailers plan to increase prices on top of January rise in VAT, to offset falling sales and soaring costs
Consumers face a year of inflation in 2011 after almost three-quarters of top retailers admitted they are planning to raise prices on top of January’s VAT increase to offset an expected drop in sales and rising costs.
Despite some bullish Christmas trading figures issued today by Waitrose, John Lewis and House of Fraser, most retailers are expecting a much tougher 2011.
According to the British Retail Consortium (BRC), 74% of retailers surveyed said they planned to raise the prices of goods in the shops, with 13% saying prices would remain the same and only 13% saying they would fall. VAT is also rising from 17.5% to 20% from 4 January.
The survey confirms earlier warnings that retailers plan to smuggle price rises into their shops to offset the rising cost of raw materials, an increase in business rates, rent rises and soaring utility bills.
Almost two-thirds of retailers told the BRC they expected retail sales to fall next year, with only 18% expecting them to improve.
Asked what their top concerns were heading into the new year, 82% cited weak consumer demand and 76% pointed to inflationary pressures. These worries outstripped concerns over weakness in the economy, which were listed by 35% of retailers.
Howard Archer, chief UK economist at IHS Global Insight, said retailers needed to be mindful of the relationship between a weak economy and consumer demand.
“The likelihood is that consumer spending will be limited in 2011. Consumer confidence is currently low, while the substantial fiscal squeeze will increasingly hit public sector jobs and consumers’ pockets.
“Households already face high unemployment, negative real earnings growth and elevated debt levels.
“On top of this, the weakness of the housing market is likely to have a dampening impact on consumer spending. Furthermore, rising energy prices and elevated food prices are limiting the ability of some consumers to make discretionary purchases,” he said.
But the retailers surveyed are planning to respond positively to a tough year, with almost half – 47% – expecting to increase employment, with only 24% planning to cut staffing levels.
Investment is also set to increase, with 41% saying they expect to increase spending on their business, just under a quarter saying it would remain the same, and 35% saying it would fall. More retailers said they would run down their stock levels, however, with 35% planning to decrease inventories, compared to 18% increasing stock levels, with the balance keeping it unchanged.
The survey of 17 major retailers, who represent about half of all UK retailers’ turnover, took place at the end of November. The BRC had forecast that sales for the crucial December period would be up moderately, compared with last year, but now expects the freezing weather to have hit trading.
Today shopping centres around the country reported bumper sales as a combination of thawing weather and heavy discounting attracted previously snowbound shoppers.
Consumers are expected to spend £22.5bn in the January sales this year. Retail analyst Nick Bubb at Arden Partners said: “It’s hard to be precise, but in general I wouldn’t be surprised by 20-25% sales increases for next week, compared to the same week a year ago, given the pent-up demand.”
Stephen Robertson, the BRC’s director general, said that while many retailers had overcome the worst effects of the snow and could enjoy strong sales in January, the next year was likely to prove difficult. “Our snapshot shows that retailers expect a difficult December to be followed by a tough 2011.
“They believe the VAT rise will contribute to higher prices and, with fears about government cuts and the wider economy, people will be put off spending,” he said. “But the positive news is retailers are demonstrating more faith in longer-term prospects. An encouraging proportion intends to increase investment and create jobs,” he added.
Record Christmas sales
Today three retailers trumpeted record sales figures over the Christmas period, particularly from online sales.
Department store group John Lewis, whose sale began on Christmas Eve, reported a 42% increase in online sales that day compared to 2009. Online sales were up by 45% on Christmas Day, with sales peaking between 9pm and 10pm.
The week leading up to Christmas saw total sales of £97.1m, a rise of 30.5% compared with last year. Nine of John Lewis’s shops notched up record sales days for the run-up to Christmas.
Rival group House of Fraser, which began its sale online at midday on Christmas Eve, said that on Christmas Day online sales were up almost 150% compared to the previous year.
Upmarket supermarket Waitrose said that its sales for December up to last Thursday were up 5.4% on a like-for-like basis, while supermarket deliveries ordered online were up 45%.
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