Retailers had a surprisingly happy Christmas, fuelling hope that consumption will rebound in 2010 after what is likely to be the first annual dip in spending in shops since the 1960s.
This week, Marks & Spencer reported the first quarterly rise in like-for-like sales in over two years. High-street rival Next exceeded expectations with overall sales up by an annual 5.2% in the five months to Christmas Eve, and upgraded its profit forecast for the year to the end of January 2010 for the second time in as many months.
Christmas and New Year sales at John Lewis hit a record, with Christmas Eve sales 24% up on 2008. According to Grant Thornton, 70% of listed retailers grew like-for-like sales in the final quarter of the year, compared to only 29% a year ago.
What the commentators said
Christmas “was the easy bit”, as Andrew Hill said in the FT. Sales were flattered by the complete absence of holiday cheer on the high street in 2008 following Lehman Brothers’ collapse, while the loss of many competitors has lowered capacity in the sector and given the survivors a boost.
A key reason for the relative strength of sales is the sharp falls in mortgage rates over the past year and the cut in VAT, which have eased the pressure on “a highly indebted consumer geared into the property/mortgage market”, as Bank of America/Merrill Lynch put it.
But the tailwinds are turning into “something nearer to a perfect storm”, said Neil Collins on Breakingviews.The VAT cut was reversed at the start of 2010; interest rates have nowhere to go but up; and the huge deficit implies tax increases and the danger of another “scythe to employment” as the public sector is squeezed, noted Hill.
All this helps explain why consumer confidence has just taken its biggest dive in over a year, and Next chief executive Simon Wolfson expects another “sluggish year”. He notes that “it would be very difficult for the consumer to recover robustly” while the government deficit is “meaningfully reduced”. For retailers, said FTAlphaville.com, this is “as good as it gets”.