Cheerful December, but challenges ahead for retail

Cheerful December, but challenges ahead for retail

Icy weather, a "fed up of being fed up" consumer and Christmas spirit all contributed to healthy retail growth for many fashion stores in December. just-style news editor Joe Ayling now looks at whether the momentum can be maintained.

A host of UK retailers have this month posted favourable Christmas sales updates, bringing some respite to an embattled high street.

December's rebound could signal a return to form, and at the very least is evidence of a recovery in consumer confidence - hit so badly during 2008 and 2009.

Stephen Robertson, British Retail Consortium (BRC) director general, says: "Retailers will be hoping this is a permanent turn for the better not a brief break in the gloom."

The BRC reported last week that like-for-like retail sales in the UK rose 4.2% in December, compared to the same month a year earlier.

In addition, four out of five retailers who responded to the BRC's 2010 Concerns Snapshot Survey, believe retail sales in 2010 to be the same as 2009.

"It's reassuring that our snapshot shows no retailers expect sales in 2010 to be worse than this year. But factors, such as weak consumer demand and rising unemployment, are at the heart of retailers' concerns about how the recovery will pan out," Robertson adds.

Forces in play - analysts
Analysts in the city identify a host of other factors they expect to influence the UK's emergence from recession, including the uncertain housing market and a looming general election.

Richard Lowe, of Barclays Retail & Wholesale Sectors, says: "Given the poor trading environment for most of 2009, the sector performed exceptionally well in quarter four. There is a good case for some of this momentum to continue into quarter one.

"However, there are several unknowns ahead which could destabilise or reverse the process.

"These include house prices possibly falling again, rises in or extension in the scope of VAT, higher interest rates, more direct taxes and the impact of the reversal of the GBP200bn (US$323.5bn) pumped into the economy via quantitative easing."

The KPMG/Synovate Retail Think Tank (RTT) believes that improvement in UK retail sales will continue into the first quarter of 2009, but warns of a slowdown from the growth seen in the fourth quarter.

Vicky Redwood of Capital Economics, says: "There was some pulling forward of spending due to the VAT increase but its importance is debatable.

"The long election campaign will likely delay any significant detrimental impact on retail spending until after quarter one but sentiment could shift at any time."

Retail rebound
Among the UK fashion retailers to grow sales over the Christmas period are Next, Marks and Spencer (M&S), N Brown and Asos.

Clothing retailer Next also increased its full-year guidance after like-for-like sales for the 22 weeks to Christmas Eve rose 3.2%.

M&S, meanwhile, disappointed the city with a 0.8% rise in total like-for-like sales, but saw clothing sales soar 4% in the 13 weeks to 26 December.

Later in the month direct retailer N Brown Group reported a 4.9% rise in sales in the 19 weeks to 9 January, buoyed by the online approach that also helped Asos bolster Christmas sales by 30%

US monthly sales sparkle
In the US, where retail sales have been gradually improving over the past 12 months, analysts at Retail Forward say same-store sales excluding Wal-Mart increased 3.0%, compared to December 2008.

"The trend through the holidays is now pretty clear that shoppers are moving toward stronger spending into 2010," says Frank Badillo, senior economist at Retail Forward. 

"But it's also clear that ­some cautiousness will persist and that spending will remain uneven across categories and retailers."

Global retailer Gap Inc, luxury chain Nordstrom and department store Saks Incorporated were among the high-profile brands showing strong growth during December
, showing that spending increased across the board.

According to Retail Forward, US households perceive their financial health is much better than last year in terms of the value of their investments and their home, although incomes remain a drag.

Therefore, although Western retailers have undoubtedly been buoyed by a spectacular December, it seems there is still too much caution in the air to start lighting fireworks.