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Last Updated: Monday, 19 December 2005, 17:44 GMT
Jingle bells or alarm bells for retailers?
By Guy Robarts
BBC News business reporter

Oxford Street
The drive to boost sales may blur profit margins
'Tis the perfect Christmas for Scrooge to embrace the joys of shopping as retailers slash their prices in a last-minute bid to bolster sales.

This year has been an annus horribilis on the High Street and stores have been taking drastic action to defrost the wallets of reluctant customers.

UK consumers, hardened by record debt levels and a rickety property market, are less willing to unchain their credit cards this year.

Unless, of course, the price is right.

Reports of a sluggish start to Christmas trading have panicked many shops into bringing January sales forward, with some already cutting prices by as much as 75%.

"Shoppers are well aware that retailers are anxious for them to spend this year," says Nick Gladding, retail analyst at Verdict.

"There is a widespread expectation that people are spending a bit less this year."

Tills ring out

Many retailers have trimmed running costs and tightened stock levels already this year in anticipation of a rough ride.

Just as well: Figures from FootFall showed the number of shoppers on the High Street from Monday to Thursday last week down by 9.9%.

The internet is gaining ground on the High Street

To fend off a possible blitz on profits, a record number of shops, particularly supermarkets, are open 24 hours a day while most shopping centres have, at the very least, extended their opening hours.

Tesco is keeping 50 more of its branches than last year open all day, and, in a break with tradition, Marks & Spencer is keeping some of its food outlets open on Christmas Day.

Price wars intensified at the weekend when many household names kicked off their January sales prematurely in the knowledge that the weekend before Christmas is the make-or-break barometer for the industry.

Fashion icons such as French Connection, Gap and Laura Ashley cut price tags by up to 50%. They were matched by electrical goods firms such as Dixons, Argos and Comet.

Benetton went one step further, offering up to 75% off the price of its clothes.

At the same time Boots and Superdrug have been locking horns over the price of designer-brand perfumes, while WH Smith, Waterstones and Ottakar's have made it a bargain Christmas for bookworms.

As a consequence, overall spending this week on Britain's high street will reach 9.58bn, a rise of 1.91bn on the same period last year, according to retail analysts TNS.

Online threat

Part of the reason High Street stores have had their nerves jangled this year is because consumers no longer need to venture outside to buy their Christmas presents.

Shoppers on Oxford Street, London
Discounts lured shoppers to Oxford Street at the weekend

Shopping from home is proving more popular than ever this year, according to reports.

"It's a much more accepted way of shopping now," says Nick Gladding. "And it's increasingly seen as the cheapest place to go for the cheapest bargain, particularly on things like electricals."

But fears that retailers without a website are at a disadvantage are unfounded, he says.

"Online still only takes a small share of the market. Overall its about 3% of retail sales."

Nonetheless, supermarkets are struggling to meet online orders following a sharp and much bigger than expected rise in demand, and say internet sales have risen 50% compared with last year's pre-Christmas period.

In contrast, High Street sales have risen just 0.9%, according to IMRG, which represents e-tailers.

"The internet is gaining ground on the High Street," said consultant Deloitte. "More than half of UK consumers will buy online this Christmas."

At what price?

Another factor forcing stores to pull out all the stops, in what has been described as a "highly tactical" year for retailers, is that canny consumers are staying one step ahead of the game.

Volumes are improving, but if you look at the actual value of retail sales they are barely higher than a year ago
Nick Gladding, analyst

Many shoppers are leaving things to the last minute this year in order to snare the best deals, forcing stores to play a cat-and-mouse game not only to outwit their rivals but to outwit customers too.

"Everyone's been expecting a bad Christmas for a long time. It's been part of the strategy to offer these quick sales and short-term discounts to get people into the shops," says Mr Gladding.

Ramping up sales by drastic discounting is all very well, but what will shareholders think when leaps in turnover are not translated into profits?

"Volumes are improving, but if you look at the actual value of retail sales they are barely higher than a year ago," says Mr Gladding.

Over that time retailers have faced higher operating costs, particularly on the property side, so heavy discounting will only make matters worse.

Santa's sleigh may be chock-a-block with bargains this year, but the extra weight on retailers could leave profits stuck in the snow.

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