Dismal trading figures from Kingfisher‘s B&Q chain of DIY stores underlined the woes of timber-focused retailers in August. A recovery in demand depends mainly on a revival in construction and in the manufacture of household-related goods.
The toughest trading conditions “in many years” sent B&Q sales down by over 6% in the 13 weeks to the end of July, and sales continued to fall in the second half of the year. Weaker spending and the downturn in housing particularly affected higher ticket items such as kitchens, bathrooms and bedrooms. The company has reacted with plans to offer a broader range of products for home improvements, and by improving product availability.
B&Q will also close 22 of its stores, reflecting the countrywide consolidation of DIY stores and timber outlets. Oxford Economic Forecasting warns this trend puts at risk timber sales to households and smaller construction businesses in a similar way that superstore sales of furniture could impose strict price discipline on wood processors as their products enter the mass-merchandise supply chain.
Retail sales
Official figures indicate that retail sales volumes were flat in August although in the latest three months they rose by 0.8%. Figures for household goods stores point to a 0.9% volume increase between the two latest three-month periods but a fall of 1.8% compared with the same time a year ago.
A CBI survey suggests that 89% of furniture retailers suffered a drop in volume sales during August compared with August 2004. In July 92% had reported a year-on-year fall. The British Retail Consortium confirms that sales were difficult, and fitted furniture and kitchens still struggled for buyers.
High street prices of furniture continued their rollercoaster ride in August, according to government statistics. Average prices dropped by 2.8% on the month but rose by 4.6% compared with a year earlier – down from a 7.9% annual hike in July, and a 2.3% increase in June. The overall retail price index rose by 2.4% in the 12 months to August.
Annual factory gate inflation eased to 3% in August, from 3.1% in July. Manufacturers’ input costs rose by 12.9%, from 14.1% in July, despite a sharp rise in oil and energy prices. Wood and wood product manufacturers’ factory gate and input costs rose by 4% and 2.8% respectively in the year to August.
The cost of labour, as measured by average earnings, shows little inflationary pressure. In July earnings in the overall economy rose by 3.9% year-on-year, while private sector wage growth was 3.8%.
Labour market
The labour market remains relatively tight, despite a rise of 1,600 in the numbers claiming unemployment benefit in August. Total employment in the latest three months was 315,000 higher than at the same time last year. Nonetheless consumer confidence took a hit in August and slipped to a nine-month low as pessimism about the economy increased.
The appetite for house buying remains weak, but private housing orders placed with contractors in the three months to July were up 25% compared with a year earlier, and public-sector housing orders rose by 32%.
Total orders for new construction placed with contractors in the three months to July were up 9% compared with the same time last year. Infrastructure orders placed in the three months to July were up by 73% annually but commercial project orders fell by 22%. Orders for industrial buildings rose 69% on the year.
The NTC Research’s August survey of construction industry purchasing managers reveals that activity was the strongest since April last year, supported by strong growth in the commercial sector. But optimism about future prospects, while still remaining high, fell to the lowest level in almost four years.
