Dark clouds gather over the high street

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

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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.