A series of shock profit warnings from Mothercare and Supergroup as well as Tesco's worst UK sales in two decades painted a picture of a high street in crisis as soaring living costs force shoppers to batten down the hatches.
The pressure on consumers was borne out by new economic data for the second quarter of the year which showed the biggest decrease in consumer demand since the recession – a 0.8% fall in household consumption.
High petrol prices, a surge in electricity costs and static wage growth were blamed for consumers spurning clothes and furniture shops while they maintained spending on food. Figures also showed the 2008-09 recession was deeper than originally thought and the worst downturn since the second world war. Revising previous numbers, the ONS halved its GDP estimate for April to June this year to just 0.1%, suggesting the economy had little more than flatlined since last autumn.
Tesco boss Philip Clarke compared life in Britain in 2011 to the early 90s recession: "I remember bringing up a young family in the late 80s and early 90s. It was pretty tough then when interest rates rocketed and it feels like that to me [now]."
The country's biggest retailer reported its first six-monthly decline in underlying UK sales for 20 years as Britons were forced it cut back not only on extras like clothing and household gadgets but their weekly grocery shop. Clarke said the spike in petrol prices in particular was having a "pernicious" effect on already stretched household budgets. The higher oil price meant Tesco shoppers spent £750m more to fill up their cars between February and August, money that could have been spent elsewhere, he said.
With food price inflation running at around 5% and higher domestic fuel bills also dropping through the letterbox, there has been a knock-on effect across the high street with homewares chain Dunelm, chocolatier Thorntons and Flybe – Britain's largest domestic airline – among those also reporting a drop in sales. The pain at Supergroup, the fashion group behind the Superdry brand, was self-inflicted after an IT glitch at its warehouse led to sales disruption.
With little if any prospects for sales growth, retailers are slugging it out for market share. Competition between supermarkets is especially fierce. The grocers are seeing record levels of promiscuity among their customer base as shoppers go from store to store hunting for bargains or shop in their convenience stores rather than risk over-spending on a "big shop".
Sainsbury's boss Justin King said it was seeing 800,000 more shoppers through its doors every week: "Our convenience stores are particularly strong at the moment and that is reflecting the changing customer trend of buying a little bit less in the weekly shop and topping up a bit more frequently."
The tough climate has seen the supermarkets and fashion chains resort to discounting to pull in shoppers, tactics which are having a dramatic impact on sales at children's goods retailer Mothercare. It reported that UK like-for-like sales had tumbled nearly 10% in the last three months, prompting its share price to fall 40% at one point. It later recovered slightly to end down 24%.
"We have seen a downturn in consumer confidence in the weeks following the UK riots and trading has deteriorated further in the last four weeks," said chief executive Ben Gordon.
Mothercare, which has 353 UK stores, has struggled as the major supermarkets target the mother and baby market. Although the 50-year-old company has a large international business, the UK chain delivers the lion's share of profits. Gordon said its profit margins had been hit by a wave of discounting and that hard-up shoppers were also "trading down" on big-ticket purchases like pushchairs.
Richard Hyman, strategic retail adviser at Deloitte, said: "Three major groups: consumers, businesses and sovereign states have been affected by the economic turmoil and the constituency which has acted fastest, and in a coherent and tactical way, is consumers." Hyman said it was "totally predictable" that next year would be worse and it would see a full 12 months of the government's austerity drive.
Economists warned that firms were struggling to survive amid a lending drought and urged the Bank of England to expand its quantitative easing programme when the monetary policy committee concludes its monthly meeting on Thursday.
Several committee members have signalled support for spending an extra £50bn of "electronic money" to lower long term interest rates. But it was still unclear whether a decision would be delayed until next month when more recent growth figures will be available.
The shadow chancellor Ed Balls seized on the data as evidence that the British economy had "stagnated since the autumn of last year, well before the eurozone crisis … They should set alarm bells ringing in Downing Street and the Treasury. They show things are even worse than we thought and that the economy has not grown at all for nine months," he said.
The Bank of England is expected to pore over high street data and figures for business confidence before making a decision on expanding its £200bn QE programme.
Forward-looking data has revealed a sharp drop in confidence since the spring, especially in key sectors such as manufacturing and services.
Surveys of the manufacturing and services industries this week painted a rosier picture of activity in September but highlighted depressed expectations of sales over the next six months.
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