Shoppers are buying less in local stores and spending more overseas, according to a Government report released yesterday.

The Retail Sales Index for August shows that the volume of retail sales fell by 2.6 percent while spending by residents abroad increased by 13.5 percent from the same month last year to $8.4 million.

Kristi Grayston, chairman of the retail division of Bermuda Chamber of Commerce, told The Royal Gazette that the decline in local spending was of deep concern to retailers.

"It affects us quickly," she said. "Everyone is seeing a drop in their sales figures. I think people are very nervous going into the holiday.

"Once again the biggest increase is in overseas spending and that seems to go up and up and up.

"A thirteen and a half percent increase on overseas spending is quite remarkable and remember that number only reflects what people buy when they are physically abroad. It doesn't include catalogues or Internet shopping."

Mrs. Grayston, who owns the Pulp and Circumstance gift stores, described the retail community as "extremely worried" about the upcoming months.

"Especially as we go into, for us, the most important time of year, we are asking what will people do this year? I read this morning that Walmart have already started discounting for the holidays. We're so far away from those key dates, it's a bit frightening.

"You don't want to make it sound like Armageddon but I think we are in for a difficult winter."

The index reveals a moderate growth in retail sales for August up 3.1 percent or $2.8 million from the same time last year to $96.1 million.

But as the report explains: "After adjusting for the annual retail sales rate of inflation, measured at 5.8 percent in August 2008, the volume of retail sales fell by 2.6 percent.

"This reflected an overall decline in the total quantity of goods sold in the retail sector for the month."

The report said that higher prices for gas and food meant households were spending on the essentials but skimping on luxury goods.

Only service stations and food stores experienced double-digit gains in sales receipts during August.

Food store sales rose by 11.2 percent and gas by 19.4 percent year on year, the latter mostly due to the 20.2 percent rise in the cost of premium and mixed gasoline.

The report said clothing retailers registered their second consecutive decline in sales revenue, with gross turnover falling 4.6 percent during the month after a 5.1 percent drop in July.

Mrs. Grayston said the fractional decline of 0.6 percent in construction sales was also disturbing. "It's very concerning to see the construction sales starting to dip," she said. "That just means things are slowing down."

Michelle Khaldun, general manager of Bermuda Small Business Development Corporation (BSBDC), said the fact that overseas spending was up in August did not seem to back up the theory that residents were spending only on the essentials.

"It's hard to make that assumption," she said, adding that it wasn't clear if it was pricing or choice or other factors affecting consumers' decisions about where to spend their money.

Ms Khaldun said small business owners were feeling the bite of expensive retail space costs and that the sector might need to look at more affordable mall space as a future option, such as the soon-to-be-opened Gallery 135 on Front Street.

"People going into the retail business now can get a small space there. This is, I think, a great way to address this issue."

BSBDC is in the process of gathering information from retailers and restaurateurs on their sales and is planning a January workshop on ways to operate profitably during a slump.

The index reveals that the motor vehicle sector saw a decline of 10.3 percent in gross sales in August its fifth month of declining sales this year.

Tourist-related stores also reported another month of declining sales activity.