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Retailers Still Feeling The Pinch

By FashionUnited

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The number of positive trading statements issued by quoted retail companies on the London Stock Exchange during the second quarter of 2005 has dropped to 28% of the total compared to over half 56% recorded last year, according to Grant Thornton's Quoted Retail Companies Index. Over the same period, the percentage of negative statements has increased marginally from 18% to 21%, whilst the percentage of neutral statements has risen from 26% to 51%.

David Bush, Head of Retail at Grant Thornton commented: "Downbeat retail sales have shown little sign of abating during the past nine months and as a result the number of positive retail trading updates has fallen. However, despite some reports of a retail meltdown, the analysis of the trading updates issued by quoted retailers suggests that negative sentiment on the high street may have already reached its lowest point and is now bottoming out.

"Shoppers are continuing to keep a very tight reign on their finances," Bush continued. "This is despite government statistics showing that UK employment levels are stable and that average earnings rose by 4.6% between April 2004 and April 2005. Clearly the problem is one of confidence. The scale of UK personal debt and its impact on the economy together with an uncertain housing market and tax and interest rate increases continue to impact consumers. The latest Bank of England figures reveal that although consumer credit lending dropped (from £1.9bn to £1.3bn) between March and April this year, during May consumer borrowing rose again to £1.8bn. These figures prove that consumers are still spending, but not necessarily on the high street."

Further analysis of retail trading updates during the second quarter of the year reveals that there were eight profit warnings issued, compared to just three in the second quarter of 2004. The discernible pattern arising from an analysis of those profits warnings is that many of these relate to retailers with a higher average transaction value where the shopper has the discretion to defer the purchasing decision. "When consumers tighten their belts it is often discretionary goods that are singled out for cutbacks.

Retail