Economic Scene

There certainly is gloom and doom in the papers and press at the moment. With Aglation (agriculture inflation) and crude prices per barrel slightly dipping,, reduced GDP and the credit crunch is there any hope for the economy! FashionCapital reviews the latest indicators at both the economic and retail level to provide an overview.

The economy continues to be under pressure from all quarters. Despite inflation running well above the 2% imposed target, the Bank of England has again this month opted to hold interest rates at 5%. House prices are falling at around 2% per month and could see a drop of north of 10% by year end. This, combined with oil now trading around the $140 a barrel, is a toxic concoction for the consumer and does nothing to inject a ‘feel-good' factor into the high street.

The banking sector has seen further consolidation due to the high cost of funding in the wholesale market, with Santander, the Spanish owners of Abbey, buying Alliance & Leicester. The future of Bradford & Bingley also remains uncertain following a series of botched attempts to raise capital. There will inevitably be a large number of resulting redundancies to add to the increasing toll of casualties over the past months in the Square Mile. Superimpose the plight of the building sector and questions must be asked as to how long retail can take the strain without shedding significant numbers.

The chances of any stimulus to the economy look slight in the months ahead. Some key updated numbers are below:

CPI +3.8% (3.3%), RPI (all items) +4.6%, Unemployment 5.3%, Q1 GDP +0.3%, Food prices +7% (yony) with non-food moving into inflationary territory at +0.2%

Retail Scene

After regaining the public's affection M&S appears to be losing it again fast! Stuart Rose came through the recent AGM virtually unscathed but trading across the brand is dire. A drop of 5% in food sales was enough for Steven Esom, late of Waitrose, to be shown the door after only three months on the Board. Whilst up against tough comparisons from last year, JLP is also facing tough trading after sales dropped over 8% during the first week of the sales, but reported a welcome 5.9% increase on second week of sales. However, all is not doom and gloom with the value sector doing particularly well. Primark reported last quarter sales up 14% on last year, whilst Matalan profits were up from £28.1m to £53.2m. On-line retailer ASOS sales doubled last year with profits soaring 117% to £7.3m. Music retailer HMV also reported a remarkable turnaround with profits up 25%.

Sales are in full swing across the high street as retailers attempt to shift stock albeit with much reduced margins. BRC reported like-for-like sales rising 1.9% in May but this fell back to -0.4% in June, compared with 2007. Total sales are up 2.1% compared with 2007. The retail situation remains hugely challenging with food retailers endeavouring to keep prices down in the face of high price inflation, whilst non-food retailers struggle for a reduced share of wallet.