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Customers continue to desert high street stores

CURRENT strife in the retail sector will be laid bare next week when companies including the owner of Argos and Homebase post updates.

CURRENT strife in the retail sector will be laid bare next week when companies including the owner of Argos and Homebase post updates.

Supermarket chain Morrisons will shed light on how consumers are reacting to higher grocery prices when it updates the market on Thursday.

The cost of food was 6.2% higher in July than a year ago, according to official figures, while alcohol and tobacco prices were up 10.3%.

With shoppers’ budgets being squeezed as wages fail to keep pace with the rising cost of living, supermarkets are having to fight hard for trade, with special offers and price cuts squeezing their margins.

Industry figures from Kantar Worldpanel showed that discounters Aldi and Lidl are thriving in the current environment, growing much faster than the rest of the grocery market.

Morrisons, which has some 450 outlets, is the only one of the big four supermarkets to have continued to grow market share in the 12 weeks to August 7, the figures show.

Its sales grew at 4.6%, faster than the overall market growth of 3.8%, boosting its share of the market to 11.7%.

Morrisons’ performance was helped by opening stores as it expands into new areas, particularly the South East, and by promotional drives, such as its Let’s Celebrate campaign around Easter and the royal wedding.

The Bradford-based chain is expected to reveal that pre-tax profits rose 7% to £440m in the half year to August 1, according to Philip Dorgan, an analyst at Panmure Gordon.

He expects like-for-like sales to have risen 1.9%, boosted by food price inflation.

Argos and Homebase owner Home Retail Group and Currys and PC World parent Dixons Retail will do nothing to alleviate concerns over the state of high street trading when they both update the market this week.

Analysts will be looking for an update on how both businesses were impacted by the riots which rocked England last month after looters targeted consumer electronics chains across London, Manchester and Birmingham.

Catalogue chain Argos is expected to reveal a 9% drop in like-for-like sales in the three months to June, analyst Seymour Pierce said, while garden and homewares store Homebase is forecast to show a 3% drop in same-store sales.

Argos, which has 750 stores in the UK, had a poor start to the financial year with declining same store sales, driven by poor demand for consumer electronics, including televisions and video gaming.

The retailer is one of a long list of victims of a consumer spending squeeze, driven by high inflation, weak wage growth and fears over the economic outlook.

Elsewhere, Currys and PC World owner Dixons Retail is expected to report a 13% decline in like-for-like sales in its first quarter to July, according to consensus figures. The wider group, which operates in 26 countries, is forecast to show an 8% drop in like-for-like sales.

Dixons, which has 640 outlets in the UK and Ireland and 1,200 stores worldwide, posted a drop in profits in the last financial year and trade has not picked up since then.

Like Argos, the company’s brands have been hit by the clampdown on household spending.

The struggle on the high street was underlined last month when official figures revealed a greater-than-expected slowdown in retail sales for July.

Volumes increased month- on-month by 0.2% in July, compared to a revised 0.8% boost in June, the Office for National Statistics said. Economists had expected a 0.4% rise.

Chocolatier Thorntons will reveal on Wednesday whether there has been any let-up in the poor trading that has forced it to hatch a turnaround plan.

The retailer, which is forecast to reveal a £3.2m pre-tax loss in the year to June, said it will close up to 180 stores following a strategy review., putting between 750 and 1,125 jobs at risk.

 

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