Retail outlook on the edge of a precipice

Whether due to last week’s gloomy pronouncements from Lords Wolfson and Harris, the rising prices of petrol or food, or the disappointing BRC July sales figures revealed this week, anxiety is mounting.

Perspective is required. After all, Wolfson is the past master at spotting storm clouds in the distance, which helps Next outperform City expectations when things turn out not to be so bad. And while the 2.6% sales growth reported by the BRC in July is nothing to write home about, neither is it a portent of disaster.

But what’s gathering could be a perfect storm. Soaring petrol and commodity prices, looming public sector job cuts, a dormant housing market and January’s VAT rise don’t make for a pretty combination.

This doesn’t mean a double dip is inevitable. But what these circumstances do demand is extremely prudent economic husbandry. Rock-bottom interest rates have ensured that consumer spending has remained resilient through the recession. There will be a temptation to increase them to manage inflation. But to do that could bring the whole house of cards down.

Retail is a force for good

Any good pressure group knows that August is an excellent time to get stories into the papers, which probably explains last Sunday’s rash of features laying into fashion retailers over factory conditions in the developing world.

The problem with these articles is that they disguise how much work retailers have done to improve factory conditions and eliminate abuses. Pay rates in Bangladesh are always going to look low compared with those in the UK, but what’s important is that strides are being made to improve conditions for factory workers, for whom garment production for UK retailers is an vital lifeline.

That’s not to say that retailers can afford to be complacent, particularly in the face of rising costs in places like China. The nature of modern supply chains makes it hard for retailers to keep control of them, and factory owners will always try to cut corners. But retailers are more than aware of the risk to their reputations, and that to heed the pressure groups and pull out of factories rather than work with them to help them improve is often the worst thing to do.