Stores brace for more pain as cost of living rises

London: Research firm Verdict has predicted more pain for retailers this year as higher living costs force Britons to slash another £1 billion from spending on extras such as furniture, electrical gadgets, CDs and books.

Store groups are at the centre of the storm, with Verdict predicting that retail sales will increase by just £3.5 billion — or 1.2 per cent — to £295.3 billion this year, which would be the third weakest result of the last four decades.

Analyst Maureen Hinton said Britons began tightening their belts in 2007 and by the end of 2012 spending on clothing and household goods will have declined by nearly £10 billion.

"This is only a little under the total combined non-food sales of John Lewis, Next and Marks Spencer inflation has led food to become a much larger share of our expenditure. Inflation has led to us having to spend more for the same quantity."

The fashion chain White Stuff said it was slowing down its British store opening plans. "Last year has been the toughest I've seen in more than 20 years in retailing," said Sally Bailey, the chief executive.

Food sales to soar

The financial crisis had finally reached its "middle class, middle England" customers who had been sheltered from the storm by the low interest rates, she said. Its pre-tax profits for the year to April 30 were flat at £14.9 million as sales broke through £100 million for the first time.

The Verdict report, compiled with business analysis firm SAS, will also add to fears that retailers are in danger of collapsing in coming weeks amid unprecedented price reductions.

Many retailers make the bulk of their profits at Christmas and Verdict warned that the first three months of 2012 will be their hardest period as consumers cut back after the holiday spending spree.

At the moment, the future of Millets owner Blacks Leisure and lingerie chain La Senza hang in the balance as buyers are sought for the troubled chains. The survival of entertainment retailer HMV hinges on robust Christmas trading.

The Verdict report predicts food sales will increase by more than three per cent or £4.2 billion as consumers eat at home more to save money while spending on clothing and footwear sales would rise by around £1 billion or 2.4 per cent — the equivalent of £14 extra per person — due to higher prices.