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It seems that January was a far less benign month for the retail trade than anyone had thought.
Despite generally upbeat surveys from the British Retail Consortium and the CBI, official data shows that January was in fact one of the worst months on record for the high street.
Little wonder, you might think – with interest rates rising and bankruptcies at record levels, people probably felt the January spending hangover even more painfully than usual this year.
But that’s not all there is to it…
High street sales in January fell 34% by value, month-on-month. That’s the worst reading since records began in 1986.
As The Telegraph points out, sales by volume were down 1.8%, which is bad enough. But it’s only when you look at the discounting by shops, the true extent of the slump becomes clear.
As the British Retail Consortium’s Malcolm Pinkerton put it: “This paints a dire picture. If volume is falling and value is falling it shows discounts aren’t persuading people to spend. It’s clear that the interest rate rises are now affecting the consumer. It’s quite a concern, and suggests the rest of the year could also be very tough for retailers.”
Sales of household goods and clothing were worst affected. As Vicky Redwood at Capital Economics put it – “strong retail sales over Christmas turned out to be at the expense of sales in January.”
However, statistics also show that annual internet sales grew by 17.7%, some of the strongest growth on record. So it’s not just down to consumers being laden down with debt – they’re also becoming far more internet-savvy.
It’s no surprise. Prices are cheaper, and you don’t have to venture out among the hordes on Oxford Street, or battle your way to and through Brent Cross or Bluewater, or all those other grim out-of-town shopping theme parks.
As we’ve said before, this online shopping revolution will have an impact on a number of sectors, not least the commercial property market – if retailers are seeing profit margins squeezed on the high street, while internet sales are soaring, it’s only a matter of time before some of the majors decide that cutting back on bricks and mortar is worth a go.
Right now, they are probably too concerned that losing ground on the high street means losing brand visibility, which is clearly vitally important for retailers. But the ongoing spread of broadband into UK households, combined with tougher competition for a diminishing slice of the high street pie, makes it inevitable that some will have to migrate online.
DSG International, owner of the Currys and Dixons brands, has already switched Dixons to being an online-only brand. We wonder who’ll be next.
Jody Clarke wrote about the impact of online shopping on the traditional high street, as well as suggesting two tips on which stocks might benefit, in a recent issue of MoneyWeek – if you’re not already a subscriber, you can get access to all the content on the MoneyWeek website and sign up for a three-week free trial of the magazine, just by clicking here: Sign up for a three-week free trial of MoneyWeek.
Turning to the stock markets…
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In London, the FTSE 100 closed 12 points higher at a fresh six-year high of 6,433. Publisher Reed Elsevier topped the leaderboard with gains of over 6%. For a full market report, see: London market close
Across the Channel, the Paris CAC-40 closed 4 points lower, at 5,720, due to the subdued start on Wall Street. In Frankfurt, the DAX-30 ended the day 2 points weaker, at 6,958.
On Wall Street, the Dow Jones recovered from a weak start to end the day at a new record high of 12,765, a 23-point gain. Th tech-heavy Nasdaq gained 8 points to close at 2,497, and the broader S&P 500 ended the day at 1,456, a one-point gain.
In Asia, the Nikkei was hit by profit-taking and had fallen 21 points to 17,875.
Crude oil had fallen back to $57.77 this morning, whilst Brent spot had slumped to $55.48.
Spot gold was at $667.40, off an intra-day high of $699.70, and silver had risen to $13.93.
And in London this morning, transport group Go-Ahead reported a 17% increase in first-half profit and announced a number of deals currently under negotiation, including a possible contract with Air Canada and its shortlisting for the Silverlink rail franchise. Go-ahead shares were unchanged as of 0907 today.
And our two recommended articles for today…
Mainstream finance gets it wrong on gold
– When rising prices are described as ‘a bullish sign’ you know there’s something wrong with the way an investment is being reported on. For Adrian Ash’s views on the ‘ glib idiocy’ of much coverage of gold – and the facts you really need to know about the state of the global market – click here: Mainstream finance gets it wrong on gold
Why economic problems can’t be solved by a currency ‘fix’
– Currencies were on the top of the agenda at last weekend’s G7 meeting. But, says Stephen Roach, the US and Europe’s gripes about the renminbi and the yen are disctracting central bankers from the real issues. To find out why currency complaints are merely a distraction, read: Why economic problems can’t be solved by a currency