Every now and then, while commuting into work, a business headline comes onto the radio that stops you in your tracks.
The claim on Thursday (25 August) from Peter Marks, chief executive of UK retailer The Co-operative Group, that trading conditions in the country are the worst he had seen in his 40-year retail career was one such moment.
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It is rare that a chief executive of a major UK company makes such a stark pronouncement. CEOs, though they hint at how they see the economic environment, try not to make such blunt comments, particularly when they are negative.
There have been signs that trading in the UK is tough in recent weeks, both from a macro-economic perspective and from within the industry. Food sales are up but only due to inflation. Volumes remain under pressure, which has led retailers to step up promotions to shore up volumes and boost traffic. Unemployment in the UK is rising and GDP growth slowing. Nevertheless, Marks’ comments, made as The Co-op reported a fall in first-half profits, raised eyebrows.
“I’ve operated through quite a number of recessions over the years. This is by far the longest,” Marks said on Thursday. “Some argue this is not a recession. The economists would argue it doesn’t satisfy the criteria of a recession. I believe the consumer thinks it’s a recession and I don’t think we’ve come out of a recession since 2008 in the real economy.”
He added: “For the first time in my experience, food sales have been hit. Normally, in a recession or in a boom time, food sales stay pretty constant. There’s a little growth but it doesn’t swing up in a boom or down in a recession. [This is] the first time I’ve witnessed sales volumes declining in a recession significantly.”
Marks said consumer confidence was being hit by falling property prices, a fear of unemployment and lower disposable income. “All of those things are impacting very, very harshly on the consumer’s ability to spend. That’s been the case for some time now and I think it will be the case for some time in the future,” he said.
The comments from The Co-op chief came on the same day that The Confederation of British Industries said that, in August, retail sales volumes had fallen for the fastest pace for over a year.
The CBI’s latest quarterly Distributive Trades Survey found 31% of retailers saw the sales volumes rise in the two weeks to 16 August but 46% said sales had fallen. Judith McKenna, chair of the CBI’s Distributive Trades Panel and COO of Asda, said August had proved a “tough month on the high street”.
“Sales volumes fell at a pace not seen in over a year, as consumers have continued to see their real incomes squeezed by a combination of inflation and weak wage growth,” McKenna said.
Yesterday, McKenna’s own company issued its latest survey of the spending power of UK consumers. The Asda Income Tracker claimed that UK families were GBP11 a week worse off in July compared to the same month last year.
Asda said the “rising costs of basics” was affecting incomes. It cited data from drivers association The AA that claimed transport costs were up 16.5% in July year-on-year.
Andy Clarke, Asda’s president and CEO, said: “The Income Tracker spells out how tough family finances are right now. The maths is simple – the rising cost of feeding the family, getting around and increasing unemployment add up to the biggest squeeze on families since before the last recession.”
Next week, Morrisons, the UK’s fourth-largest retailer and one seen as operating at the value end of the sector, announces its half-year results. It will be interesting to hear how Dalton Philips, the retailer’s chief executive, views economic conditions in the UK.
