Dark clouds gather over the high street
Retailers are going bust with alarming speed at the moment – and the sector faces some very gloomy prospects for 2009.
The gloom over retailers' prospects helped Marks & Spencer when it updated the market this week expectations were so low that a mere 7.1% third-quarter revenue slide was seen as almost good news. True, it was the steepest decline in at least nine years, but the City was braced for even worse. "Sales are bad, but not quite so bad as we expected," said Pali International's Nick Bubb. The 1,230 employees set to lose their jobs at the 25 "underperforming" Simply Food shops to be closed may not be so happy, although chairman Stuart Rose said there'll "almost certainly" be no further closures. But investors can expect little improvement: margins "are likely to be 175 basis points lower than last year" due to discounting. Rose "denied the expected margin fall was a profits warning", said The Times' Peter Stiff. But he also "refused to be drawn on whether the company would pay a dividend".
M&S expects tough economic conditions for at least the next year, which chimes with updates from Next and Debenhams. But Next boss Simon Wolfson, "gave a guardedly upbeat assessment of the consumer economy", said The Daily Telegraph's James Hall. Seeing "good news on the horizon" for disposable income, he added: "I don't see a general meltdown. There'll be restructuring and closures, but overall the high street won't look very different in a year's time." "Maybe, but he'd be a fool if he hasn't planned for an exceptionally difficult year," said The Independent's Jeremy Warner. "Consumers have been trimming their expenditure, but not until they start losing their jobs en masse will you see the real damage to demand. Over the next few months, the pain will ratchet up."
Housing crash to savage sales
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Certainly, the Bank of England's latest housing equity withdrawal figures provided no post-Christmas cheer. Reversing the trend that saw more than £300bn extracted over the previous nine years, British households put £5.7bn into housing via mortgage repayments in 2008's third quarter the biggest injection since records began in 1970. House values are plummeting December's Nationwide survey saw the largest year-on-year decline (-15.9%) since the survey began in 1991. British consumer spending has been 80% geared to house prices over the last 25 years, according to Citigroup; substantial further prices falls would be likely to savage high-street revenues. Further, the falling pound will leave retailers facing "a lot of pain" later this year from sharply higher import costs, said Bubb. The list of stores in administration or liquidation which already includes Woolworths, Zavvi and MFI could well lengthen.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
Investors pull money from UK equities as government warns of “painful” Budget
The government’s post-election honeymoon period has been short-lived, and investors are shying away from UK equities as a result
By Katie Williams Published
-
Top global fintech companies to invest in
One British fintech hogs the headlines, but there are two top performers in the US. We explain where you should put your money
By David C. Stevenson Published