Retail sales decline 1.7% as spending loses momentum

RETAIL SALES fell back in October, with core sales volumes declining 1.7 per cent as consumer spending lost momentum ahead of the Budget.

The decline in core sales (which exclude cars) more than reversed gains made in September, prompting economists to describe October’s performance as “very poor” and “disappointing”.

Including cars, the volume of retail sales fell 0.3 per cent in October. Price-cutting by retailers resulted in the value of these sales dropping back 0.6 per cent during the month, according to figures published yesterday by the Central Statistics Office (CSO).

Core retail sales are now at their lowest level since late 2005, bringing the total drop from the retail spending peak in November 2007 to 13 per cent.

On an annual basis, however, a tapering off in the decline in car sales means that overall retail sales are beginning to stabilise, with the volume of sales down 9.1 per cent year-on-year.

However, as a result of price deflation, the value of sales has plummeted further and is down 13.9 per cent since last October.

Ulster Bank economist Lynsey Clemenger said the figures showed that consumers had cut back spending on discretionary items, as the weakest retail category during the month – the “other” goods category – includes items such as toys, jewellery, mobile phones and sportswear. This category fell back 4.4 per cent in October and is down 13 per cent on an annual basis.

Volumes in the “motor trades” category, which includes repairs and maintenance as well as car sales, increased 1.4 per cent during the month, although sales remain heavily in the red on an annual basis and are down 24.1 per cent over this period.

The CSO figures show that attempts by retailers to lure consumers into starting to buy again by slashing prices are having little impact.

Sales volumes at department stores fell 2.4 per cent in October, but were down 3.3 per cent in value terms compared to the previous month. On an annual basis the trend is more pronounced, with the volume of sales down 5.9 per cent, but the value down 16.5 per cent.

Likewise, volumes of clothing and footwear are down 6.8 per cent annually, but in value terms the decline is almost 18 per cent. “The ongoing price deflation in the sector [is] clearly not having retailers’ desired effect of bolstering sales,” Ms Clemenger said.

The Budget’s cut in excise duty on alcohol, the introduction of the car scrappage scheme and the reversal of last year’s half point hike in the standard rate of VAT “should boost overall consumer expenditure in 2010”, said Alan McQuaid, economist at stockbrokers Bloxham, despite the negative impact of cuts in social welfare payments and public sector salaries.

“Furthermore, the fact that income taxes weren’t increased further should raise the spirits of the majority of consumers,” Mr McQuaid wrote in a note yesterday.

Economists expect total consumer spending to decline by 7-7.5 per cent this year, with a much less severe drop of 1.8-2 per cent pencilled in for 2010.