Sales growth at department store chain John Lewis slowed dramatically last week as consumers tightened their belts after spending freely in the post-Christmas sales.
The employee-owned retailer, which also runs upmarket grocery chain Waitrose, said on Friday department store sales increased 4.1 per cent to £55.8m in the week to January 15.
Sales in the previous week had rocketed 38.7 per cent as shoppers rushed to buy furniture and electrical goods ahead of an increase in VAT sales tax. That week had also benefited from an extra day of holiday compared with the same week the year before, and from snow disruption the same time a year ago.
"The reduced year-on-year gains in John Lewis sales fuels suspicion that consumers will be vary careful in their spending over the coming months in the face of serious pressures," said Howard Archer, chief economist at IHS Global Insight.
"It also supports the view that while consumers will have been keen to take advantage of genuine bargains in the clearance sales, activity is likely to tail off once the best of the bargains have gone."
On Wednesday Kesa, Europe's third-biggest electricals retailer, said sales had weakened following the January hike in VAT, while Kingfisher's B&Q also said DIY shoppers had turned cautious.
John Lewis has long outperformed the broader retail sector, helped by its more affluent customer base, which is coping better with rising taxes and government spending cuts than lower income groups.
Many UK store groups fear consumer demand will be subdued in the first half of 2011 due to the government's 81 billion pounds of cuts, as well as tax rises, a slowing housing market and hikes in transport and fuel costs.
Waitrose sales increased 7.5 per cent to £93.5m in the week to 15 January.
City A.M. Reporter