Blog: Leonie BarrieSpending momentum continues to slow

Leonie Barrie | 12 July 2010

Despite a warm weather boost for summer merchandise and the Memorial Day shift of some sales into June, worries about the still-fragile state of the economic recovery continued to weigh on US shoppers in June. Results booked by US retailers last week showed a gain of just 3.2% on May, suggesting that the momentum in consumer spending seen earlier this year is continuing to take a break.

There are fears that a recovery in retail sales will face more challenges in coming months as weaker consumer confidence lingers. Not only are comparisons set to get tougher during the second half of the year, but the impact of higher sourcing costs will kick in too.

And if this isn't bad enough, the back-to-school sales period is looming - the second-largest selling season after the holidays - which will be a key indicator as to how the rest of the year is likely to shape up.

For Japanese casual clothing chain Uniqlo, unseasonably cold weather presented the biggest challenge in its third quarter, leading to a drop in customer traffic and lower demand for its summer lines. But while same-store sales at Uniqlo Japan fell by 7.9%, international demand continues to grow. And while parent company Fast Retailing dimmed its full-year forecast, it believes full-year sales will still rise 19.0% year-on-year.

Despite booking a good start to its financial year - including a 6% rise in like-for-like UK general merchandise sales - Marks & Spencer remains "cautious" about the outlook for consumer confidence and spending. Worries include the recent UK Budget and plans to increase VAT, according to new CEO Marc Bolland. The retailer is also juggling its sourcing to manage rising costs.

The recent surge in strike activity across China is just one of the areas that apparel retailers and importers are watching closely - but Chinese garment makers have told just-style that sufficient wages should keep their workers from downing tools. Unrest has been growing as factory workers push for better pay and conditions as they become more aware of their rights and the rising labour shortage in some cities. The result has been industrial unrest at both foreign-invested and Chinese-owned factories.

The rising level of unrest and production stoppages in the Bangladesh garment sector, meanwhile, has put apparel firms under increasing pressure to agree a wage hike or accept a government-backed pay rise. But after yet another meeting of the minimum wage board failed to make any headway last week, it still remains to be see if factory owners will soften their stance on a wage increase.


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