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 15 May 2000 Retail Sales Remain Difficult, Despite Improvement It is indeed positive to see retail sales continue to be above their extremely poor levels of last year in both value and volume terms, but the most testing time for the industry may still be ahead. First, the dollar value of retail sales has not maintained the pace of January when they hit $17.6 billion and at $15.4 billion in March they are not much above the annual monthly average in 1999 of $14.9 billion. They still remain well below the $16.3 billion a month average in 1998, which was a recession year, and the record $19.6 billion a month achieved in the healthy 1997 year. Second, as the consumer price deflation figures show (as do the volume figures for retail sales) price discounting continues to help the overall retail market. Third, retail sales are likely to find things even more difficult in the near term with another interest rate hike expected this week. This will have a direct effect on sales by perhaps moderating credit spending and, more importantly, because of record real interest rates, by encouraging saving rather than spending. It could have a particularly marked effect on those parts of the retail market that have been doing best in recent months, including cars and other consumer durables. These are "big ticket" items potentially most affected by the cost of credit. Fourth, the recent uncertainty in the share market and the continuing weakness in property will not be helping consumers' attitudes, nor lead to a boost from the so-called "wealth effect". Fifth and finally, although tourist numbers are up substantially so far this year, they have yet to show that they are spending any more in the SAR, especially in the shops. As a result, there are still relatively tough times ahead for local retailers. For further information, contact Ian K Perkin on 2823-1242.
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