Retail sales down but online sales up

Analysts had expected a decrease after a record surge of 3.6% in retail sales in June. But the fall was just as sudden and even sharper than the year's earlier surge. Bad news for retailers, but good news for online campaigns.

Good summer weather in May boosted the sale of drinks and summer clothing, leading to the sales surge. But the following 3.9% fall was the sharpest monthly decline since the series began in 1986.

Analysts point to the fall being related to consumer spending being squeezed by rising food costs. Higher petrol prices are also encouraging people not to drive. June's food and non-food sectors alike suffered the steepest monthly falls in series history, the Office for National Statistics (ONS) said.

The decrease cut the annual growth rate to 2.2%, while sales in the three months to June were up 0.6% on the previous three months.

Some merchants have suffered, but Amazon has benefitted from soaring fuel prices. The Seattle-based company's second-quarter profits more than doubled with shares in the jumping 8.6% or $6.04 in after-hours trading last night. Predictably the company has also raised its sales forecast for the rest of the year. For the current third quarter, Amazon predicted sales of $4.2-$4.43bn. It also raised its sales forecast for the year to $19.35-$20.1bn - equating to 30-35% growth from last year. Wall Street has been expecting $19.6bn.

But operating income is now expected to be between $745m and $920m, against the previously stated $740m to $940m - meaning the mid-point is lower.

But still, Jim Friedland, an analyst at Cowen and Co, said the second quarter was solid across the board. "Certainly given all the blood on the street, this is definitely a positive earnings report," he said.

Shipping costs have surged to $128m from $75m. Amazon generally offers free shipping for purchases above $25.

The world's largest internet retailer has also benefited from the sale of Amazon's European DVD rental business - a $53 million non-cash gain. Beating analyst predictions Amazon made $158m (£79m) in the quarter to end June, up from $78m a year ago.

Revenues climbed 41% to $4.1bn while the number of active customer accounts jumped by 18% to more than 81m. Higher fuel prices are what's giving the company a "relative advantage," said Chief executive Jeff Bezos

"Even just driving 10 miles these days is a few dollars worth of gasoline," he said. "And consumers, we suspect, are beginning to take that into account and try to do trip consolidation."

A weaker dollar also helped Amazon sales. The UK, Germany, Japan, France and China - grew 47% to $1.89bn. Excluding the effect, overseas sales were up 34% - similar to US growth of 35%.

Sales of books, CDs and DVDs climbed 31% to $2.41bn in the quarter. Electronics and other general merchandise such as video games jumped 58% to $1.53bn.

UK managing director Brian McBride said: "Without a doubt there is clearly a global economic problem here and nobody is immune from that, but we're not a very good bellwether. At the end of the day the trend of the internet is still happening, people still prefer to come online, and it's a much more transparent shopping experience - you can see what the prices are."