Recession sparks fears for retail recovery

Retailers fear the UK’s return to recession could spark a further slump in consumer confidence and leave fragile trading improvements in tatters.

The Office for National Statistics reported on Wednesday the economy shrank by 0.2% in the first three months of 2012, following a 0.3% dip in the last three months of 2011, leaving the UK tail-spinning back into recession.

Theo Paphitis, owner of stationer Rymans and lingerie retailer Boux Avenue, told Retail Week: “The biggest danger is consumer perception. The worry is it will impact consumer confidence which is really borne out of unemployment levels.”

The Co-operative chief executive Peter Marks said conditions will remain tough for the foreseeable future. He said: “I do not expect to see any significant recovery in the UK economy during 2012.”

Waitrose managing director Mark Price said news of the recession could knock confidence. He added: “We always knew this was going to be a bumpy road of slow growth. Retailers need to focus on delivering good value, not just low prices.”

Retailers fear that the double dip could undermine small improvements in conditions. ONS figures last week showed retail revenues rose 4.9% in March, year-on-year, while BRC figures yesterday showed retail employment up 0.4% year-on-year in the first quarter.

BRC director-general Stephen Robertson said: “The small increase in overall retail employment is encouraging but it is clear from our return to recession just how fragile any growth is.”

Paphitis urged the Government to focus on job creation. He said: “We’re at the sharp end of business while the politicians may have never really had a proper business job. They accept no responsibility while we’ve been cutting our cloth according to our coat.”

Capital Economics chief UK economist Vicky Redwood said big-ticket retailers will be under pressure if consumer confidence falls further. She recommended they increase the use of instalment payment plans. “Any reassurances that if you buy a big-ticket item it is not going to put you in difficulty will be welcomed by consumers,” she said.

Asda’s Income Tracker this week showed consumer spending power has fallen to levels last seen in November 2008, and revealed a North-South divide. Chief executive Andy Clarke said the rising cost of essentials is “increasing the demands on family budgets and putting pressure on income growth”.

However, Price remained confident retail conditions will pick up. He said: “There is lots of opportunity for retail to capitalise on the Jubilee, Euros and Olympics.”

But Paphitis believes the summer events will not deliver a fillip. He said: “That’s a pure mickey-take. If people try to say that then they are grasping at straws.”

Redwood said any uplift from the summer festivities would be “short-lived and temporary”.

A spokeswoman for Tesco said: “We are focused on helping our customers keep the cost of shopping down during what are tough economic times for the country.

“The Big Price Drop is an investment in cutting prices on the essentials families need to buy each week such as milk, bread and fruit and veg and has helped customers shopping in our stores combat inflation.”

Shore Capital analyst Clive Black said recession is a “body blow” for big ticket retailers. Black said: “Expect more of the same for months to come and no return to the heady days of the credit binge.”