Shoppers cut back near pay day

Jun 26 2008 Liverpool Daily Post

HARD-PRESSED shoppers are coping with rising food prices by seeking out cheaper goods as pay day approaches, a retail chief said yesterday.

Supermarket Asda has seen evidence of shoppers working to “three-week cycles” and tightening belts in the lead-up to the end of the month, said the firm’s retail director Andy Clarke.

Mr Clarke’s comments came as the CBI’s latest distributive trade survey for the first two weeks of June showed the tough trading conditions being faced by retailers despite a modest improvement on the previous month.

The study showed supermarkets were benefiting as consumers cut back on eating out, but Mr Clarke said buying habits were changing.

He said: “What changes is the average selling price. We can see how people are buying into more value-orient- ated products at that stage in the month.”

A balance of 9% of retailers reported weaker activity than a year ago, an improvement on May’s 14% balance, although its three-month average showed an 18% balance reporting weaker sales, the lowest since December, 2005.

The figures are more downbeat than the surprise 3.5% rise in retail sales volumes during May reported by the Office for National Statistics (ONS) last week.

With inflation already above target and expected to rise above 4% later this year as food, fuel and energy bills increase, customers are having to spend more on essentials, the CBI said.

Mr Clarke, also chairman of the CBI’s distributive trade panel, added: “High fuel prices and concerns about the economy have blunted consumer appetites, and those retailers linked to the housing market are continuing to endure difficult conditions.

“Grocers have had another strong month and we are seeing people spend more in supermarkets as they focus on the essentials and also upgrade to higher value food ranges instead of having a night out.”

Supermarkets were the strongest performers with a balance of 67% reporting higher sales than a year ago, the largest balance since December 2005.

But this came at the cost of clothing retailers which had their worst month since the CBI’s survey began in 1983. Sales of goods linked to a stuttering housing market such as furniture, carpets and hardware continued their decline, the CBI added.

The CBI’s chief economic adviser Ian McCafferty said the squeeze was likely to worsen. He said: “There are some significant headwinds affecting the consumer which if anything are going to make things more challenging... as we go into the second half.”

Howard Archer, chief economist at Global Insight said prospects for consumer spending over the coming months were “pretty bleak”.

“Disposable income growth is muted, while purchasing power is being squeezed significantly by rising utility bills and elevated food prices, and also by higher mortgage repayments for many householders as a result of the credit crunch,” he said.

The inflationary pressures would make it unlikely for Bank of England policymakers to lower interest rates “any time soon”, he warned.

Vicky Redwood of Capital Economics said: “The CBI survey, as always, needs to be read with care, especially given that it only covers half of the month. But given the pressures on consumer finances, we still suspect that it’s giving the more accurate picture of the state of high street demand.

“We expect the official measure of sales to drop sharply in June.”