It is becoming increasingly difficult to take the ONS numbers at face value following its figures for August reported this morning. 

It is becoming increasingly difficult to take the ONS numbers at face value following its figures for August reported this morning. 

Talk to any retailer and the picture of the industry is clear. Households are under increasing pressure and have very little to spend. Yet the ONS wants us to believe that we are seeing “exceptionally high growth” in retail sales.

It doesn’t stack up, not for a moment. Let me show you why.

While it led on ‘underlying growth’ in sales seen since April 2013, the real stand-out figure is that retail sales fell 0.9% in August on July, going against economists’ expectations of a 0.4% rise.

This makes the ONS spin all the more unbelievable. The Asda income tracker indicates that household disposable income has been falling steadily since 2010 with no imminent signs of any uptick. The prices of unavoidable household costs are increasing by more than 10% in many cases with some gas bills rising by almost 30% in 2013.

As always, the ONS talks up the value of “volume growth”. This means, to take an extreme example, a switch from buying one sofa to buying two pairs of socks should be viewed favourably by retailers, simply because it increases sales volumes. 

The fact is the monthly wage bills and the quarterly rent bills are putting massive pressure on retailers who are discounting to maintain like-for-like sales but not actually making any money. When the rent bill falls on the mat, it’s the retailers who suffer.

So how do we genuinely improve the state of the high street?

Retailers should forget looking to the stats for solace and focus on their own inner workings.

If you’re heavily discounting to achieve the handsome sales figures, how much net cash profit are you actually generating? The rise of the discount retailer has led many others to react, in what is quickly becoming a race to the bottom in terms of price.

It’s fine to be part of this race. For some retailers, the customer base they have built over many years has meant the competition is unavoidable.

But if you want to keep up, you must make sure that absolutely every part of your framework is fit enough to be up for the challenge.

Retailers must get back to the very basics of running a business effectively. There have been some leading lights on this – the likes of WH Smith and Next have led the way, showing that a focus on operational excellence, cost control and cash management can offset wider economic struggles.

I was bemused when Next was criticised for not stocking enough warm weather stock as items sold out over the Summer, labelled in some parts as a ‘blunder’. In actual fact, the real blunder would have been if they had bought 20% extra stock and the Summer weather had not been so hot – which would have led to extreme discounting to clear it, thus hitting margins with massive markdowns.

All this showed was that Next is prudent with its buying margins, and retains more of the full price margin than many rivals. This is a great example of an operational efficiency which can see the company through tough times.

Other retailers must cotton on to this. The management of stock is a strong sign of the wider efficiency of the whole business.

As the ONS tries to report good figures, make sure you ignore its siren songs. Your business depends on it.

Dan Murphy is a managing director at consultancy Alvarez & Marsal