March 25, 2010 10:48 pm

UK retail groups wary on consumer confidence

Store groups warned on Thursday that uncertainty among customers could plague the retail sector this year, despite consumer spending holding up.

Next and Kingfisher, two of the UK’s biggest retailers, saw rises in profit, but the boost was underpinned by cost savings rather than rebounding consumer confidence.

UK shoppers have defied predictions as those in work have seen their spending power bolstered by lower interest rates and energy costs.

“Things have turned out very differently from how we expected. The economy has been better than anyone thought,” Simon Wolfson, Next chief executive, said.

The Office for National Statistics said on Thursday that retail sales bounced back in February.

Sales volumes in January fell 2.1 per cent as snow kept shoppers at home and VAT was raised back to 17.5 per cent. In February much of this fall reversed as sales rose 1.6 per cent.

But shopkeepers fear that the general election and moves by the next government to lower the borrowing burden will hit consumers’ spending power.

“The big uncertainty is the deficit. However it’s tackled, it’ll impact adversely on the consumer,” Mr Wolfson said.

Ian Cheshire, chief executive of Kingfisher, which owns the B&Q chain, said the outlook, along with poor weather earlier in the year, was affecting consumers. “There’s a . . . sense the consumer had gone into slight hibernation.”

Retailers are focusing on self-help measures such as improving product offerings, cutting costs and ordering prudently.

Mr Cheshire said he and his team were “rebuilding and rewiring the group”, increasing the amount of goods for its different chains that were bought centrally and cutting the amount of stock. This had helped cut working capital by £300m.

Additional reporting by Daniel Pimlott and Hannah Kuchler

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