LONDON BRIEFING: The relentless flow of bad news from the high street has turned into a torrent
WITH JUST 178 shopping days to go until Christmas, retailers’ thoughts should be firmly on their festive ranges as they plan ahead for what will undoubtedly be one of the toughest Decembers in decades. But first, they need to get through the summer.
As the relentless flow of bad news from the high street turns into a torrent, it’s already clear they will not all make it.
In the past week alone, administrators have moved in at Jane Norman, HomeForm (the company behind Dolphin Bathrooms, Sharps Bedrooms and Moben Kitchens) and Habitat, which is to be left with just three London stores. TJ Hughes, the Liverpool-based department stores group, has filed its intention to appoint an administrator and will join the casualty list within days.
Then there’s the walking wounded: chocolate retailer Thorntons yesterday said it planned to close up to 180 stores over the next few years, halving its 360-store chain.
Carpetright is also cutting shop numbers on the back of a 40 per cent fall in underlying profits to £16.9 million (€18.8 million). Investors are sharing the pain – the group axed its final dividend as chairman and chief executive Lord Harris, who has been in the business more than 50 years, said he saw “no respite” for the sector.
Almost 10,000 high-street jobs have been put at risk over the past week, adding to the casualties caused earlier in the year by the failure of wine merchant Oddbins and DIY group Focus.
Other high-profile retailers under pressure include HMV, Comet (owned by Kesa), Mothercare and sports retailer JJB, all of which are shutting stores. Clinton Cards, which is struggling with a sprawling chain of 600 shops and has already issued two profit warnings, is also reported to be considering large-scale closures and may decide to take itself private.
Those retailers who have not had to resort to store closures or profit warnings are stepping up the battle to capture as much of the consumers’ dwindling disposable income as they can.
Marks Spencer has just launched its seasonal sale – two weeks earlier than last year. Rivals Debenhams and House of Fraser also brought their sales forward by a week and the rest of the high street is plastered with promotional signs.
It’s easy to see what’s behind the retail gloom: the intense squeeze on consumer spending, together with spiralling costs, including shop rents. It was “quarter day” last week – the day that rents on commercial properties must be paid – which explains the sudden spate of collapses. But the pace of decline has taken even experienced retail watchers by surprise and there is a very real fear that even worse is to come.
The sense of crisis surrounding the high street and the prospect of half-empty malls with boarded-up shop fronts has been heightened by the fact that it’s not just basket-cases like JJB and HMV that are cutting back.
Carpetright’s Lord Harris, for example, is regarded as one of the best retailers in the business, and one who has been through his fair share of tough times.
Carpets and floor-coverings are big-ticket purchases that can easily be postponed when household budgets are under pressure, so the profits plunge should come as little surprise, particularly as the group has issued several warnings in recent months. But Harris reckons the current trading environment is the worst he has experienced, exacerbated by the below-inflation pay rises that are cutting consumers’ disposable income even further.
The extent of the squeeze on consumers was underlined by official figures yesterday showing real disposable income (adjusted for inflation) dropped by 0.8 per cent in the first quarter of the year. This takes the decline for the 12 months to the end of March to 2.7 per cent, the biggest drop in more than 30 years, which goes some way to explaining why we all feel worse off now than when the economy was officially in recession in 2008 to 2009.
Bank of England governor Sir Mervyn King, appearing before MPs at Westminster shortly after the figures were published, explained it as a necessary “adjustment” to the consequences of the financial crisis, and part of the required rebalancing of the economy. “And it’s going to be an uncomfortable period,” he said. “There’s no doubt about that.”
Against this grim backdrop, further casualties and store closures on the high street are inevitable. And those who do make it through the summer have another hurdle to negotiate before they can even think about celebrating Christmas: the next quarter day at the end of September.
Fiona Walsh writes for the Guardiannewspaper in London
