Retail Margins Plummet as Non-Food Deflation Increases

Posted on 14 April, 2012 by MOVEHUT

New statistics show the price of shoes, clothes and electrical goods plunged at its sharpest rate for 28 months in March, piling added pressure on the embattled high street.

According to the British Retail Consortium’s Shop Price Index, non-food reduction increased to 0.9 per cent in March compared to this time last year.

The drop follows a non-food reduction of 0.7 per cent in February, suggesting conditions and margins carry on deteriorating for many commercial property retailers.

BRC Director General Stephen Robertson said: “Weak demand for many goods means retailers continue to battle hard for consumer spending by keeping prices down wherever possible.”

He further added: “Non-food prices fell at their fastest for 28 months. Electrical goods and clothing and footwear experienced the biggest price falls driven by widespread promotions.”

Consumers are struggling in the midst of rising unemployment, stagnant wages, economic uncertainty and flat house prices, causing weak spending on non-essential items.

The BRC said deflation in footwear and clothing is running at 6.5 per cent, whereas the price of electrical goods is 4.7 per cent lower than a year previously.

Nevertheless, the overall rate of commercial property shop price inflation increased to 1.5 per cent as food inflation continued to rise, driven by high oil price. The price of food was 5.4 per cent higher in March year-on-year, contrasted with 4.2 per cent inflation in February.

Mr Robertson said: “The cost of oil has shot up 11 per cent since the start of the year and that’s driven up transport and manufacturing costs, increasing food inflation.”

Robertson further added: “Retailers are also shifting away from multi-buy reductions on specific items in favour of money-off coupons for an entire shop, giving customers more flexibility and producing savings on food shopping which don’t show up in this index.”

The BRC said the acceleration in clothing deflation was improved by discounts and promotions and lower cotton prices. Cotton prices are now 55 per cent down on a year previously, it said.

Mark Watkins of Nielsen, which co-authored the study, said: “With inflationary pressure continuing in the food supply chain we can expect supermarkets to keep a strong focus on promotional activity over the next few months. Shoppers are following the deals and will continue to seek out the best value for money.”

The inflation statistics came as accountancy chain PricewaterCoopers warned of a “zero sum game” in commercial property retail, meaning for every victor, there will be a loser.

Director in the valuations team at PwC in the North, Ian Logan, said: “We would normally expect profit multiples for retailers to rebound after a recession as market sentiment improves.”

He further added: “While this may be the case for some top-performing players, prospects for real growth are limited in what is a hugely competitive marketplace.”





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