Retail margins hit as non-food deflation bites

Non-food deflation increased to 0.9 per cent in March versus a year earlier, according to the British Retail Consortium’s Shop Price Index.

That compared with non-food deflation of 0.7 per cent in February, suggesting conditions and margins continue to deteriorate for many retailers.

“Weak demand for many goods means retailers continue to battle hard for consumer spending by keeping prices down wherever possible,” said BRC director general Stephen Robertson.

“Non-food prices fell at their fastest for 28 months. Electrical goods and clothing and footwear experienced the biggest price falls driven by widespread promotions.”

Consumers are struggling amid stagnant wages, rising unemployment, flat house prices and economic uncertainty, resulting in weak spending on non-essential items.

The BRC said deflation in clothing and footwear is running at 6.5 per cent, while the price of electrical goods is 4.7 per cent lower than a year ago.

However, the overall rate of shop price inflation increased to 1.5 per cent, as food inflation continued to climb, driven by the high oil price. The price of food was 5.4 per cent higher in March year-on-year, versus 4.2 per cent inflation in February.

Mr Robertson said: “The cost of oil has shot up 11 per cent since the start of the year and that’s driven up transport and manufacturing costs, increasing food inflation.

“Retailers are also shifting away from multi-buy reductions on specific items in favour of money-off coupons for an entire shop, giving customers more flexibility and producing savings on food shopping which don’t show up in this index.”

The acceleration in clothing deflation was boosted by lower cotton prices, discounts and promotions, said the BRC. Cotton prices are now 55 per cent down on a year ago, it said.

Mike Watkins of Nielsen, which co-authored the research, said: “With inflationary pressure continuing in the food supply chain we can expect supermarkets to keep a strong focus on promotional activity over the next few months. Shoppers are following the deals and will continue to seek out the best value for money.”

The inflation figures came as accountancy chain PricewaterhouseCoopers warned of a “zero sum game” in retail, meaning for every winner, there will be a loser.

Ian Logan, director in the valuations team at PwC in the North, said: “We would normally expect profit multiples for retailers to rebound after a recession as market sentiment improves.

“While this may be the case for some top-performing players, prospects for real growth are limited in what is a hugely competitive marketplace.”