Future looks bleak for retail sector

RETAIL sales sank by 2.4% in May, amid predictions that 2005 will be the worst year for shop owners since the 1960s.

The High Street gloom is showing no sign of lifting and chains such as Next forecast little respite until November.

The British Retail Consortium said underlying May retail sales were down 2.4% on a year ago despite a flood of discounts to attract shoppers. This follows a 4.7% drop in April. The three-month trend rate worsened - from 0.9% to 1.5%.

Total sales, which includes new store openings, rose by 1.4%.

BRC director general Kevin Hawkins says: 'While some analysts still claim that the continuing weakness in retail sales is only a 'blip', these figures should remove any lingering doubt that we are now in a consumerled recession.'

He is urging the Bank of England to cut interest rates at its meeting on Thursday. Economists expect rates to be kept on hold, however some expect a reduction in borrowing costs in July, if the consumer climate shows no signs of improving.

Retail consultancy Verdict says 'tales of doom and gloom appear to be justified'.

It forecasts that 2005 will see the slowest growth on the High Street in over 40 years with total sales growing by just 2.2%.

Prices are expected to drop by 1.4% to lure shopper. This will be the fourth year running prices have fallen, with purchases 4.4% cheaper since 2001.

Such tough trading conditions will see more retailers falling by the wayside. So far this year, department store chain Allders, clothes chain Pilot, the Gadget Shop and Ciro Citterio have been placed into administration. Some 830 stores have been closed or put up for sale.

Verdict says: 'With consumer demand weaker and a host of cost increases eating into margins, a shakeout of weaker High Street fascias is inevitable.'