Page last updated at 11:12 GMT, Thursday, 20 November 2008

Retail sales bring scant comfort

Are early discounts helping sales? Jon Kay questions shoppers in Swindon

Sales on the UK's High Streets fell by a lower-than-expected 0.1% in October, figures from the Office for National Statistics have shown.

The decline was much less than the 0.9% drop that analysts had predicted after sales fell by 0.4% in September.

Retail sales grew at an annual rate of 1.9% compared with 1.7% in September.

Many retailers have opted to hold pre-Christmas sales in a bid to boost spending at what should be their busiest time of year.

Food sales rose 1% in October, but non-food sales fell 1.1%. Sales of household goods were down 1.5% and clothing sales fell 3.4%.

"The drop in non-food sales clearly suggests that discretionary spending is taking a hit," said Vicky Redwood at Capital Economics.

Discount day

Marks and Spencer is cutting prices in its clothing and homeware departments by 20% for one day only on Thursday, its first one-day sale for four years.

"The customer is not conditioned to expect M&S to do these things very often," retail analyst Fraser Ramzan, of Nomura, said.

Some M&S stores will stay open until midnight for the discount day.

Sale and stock liquidation signs in a shop window
Retail sales fell for a second month in a row

But Mr Ramzan said there was a danger that shoppers would only buy reduced items that they would have bought anyway at full price, thereby cutting into, rather than boosting profits.

Other retailers, including Dorothy Perkins, Burtons, Debenhams, Selfridges and John Lewis, are also cutting prices for short periods of up to several days.

Retailers under pressure

Marks & Spencer saw like-for-like sales fall 6.1% in the 13 weeks to 27 September, while Arcadia Group, the owner of such retailers as Topshop, Dorothy Perkins and Burtons, experienced a 2.8% drop from 2007.

Woolworths has suffered particularly heavy losses and is reportedly in talks to sell its chain of more than 800 stores for a nominal price of one pound.

Paul McGowan, chief executive of restructuring specialist Hilco, said on Wednesday that talks with Woolworths were at a "very early stage".

In September, Woolworths reported a record first-half pre-tax loss of 90.8m.

Earlier this month, the Bank of England cut interest rates to 3% from 4.5% in the hope of putting more money in consumers' pockets and encouraging them to spend.

However, some analysts say that any positive effect - if it comes at all - will be too late to boost sales in the run-up to Christmas.

Rising unemployment has also dented consumer confidence.

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