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Last Updated: Thursday, 19 May, 2005, 10:46 GMT 11:46 UK
Trouble ahead for UK retailers

By Jeff Randall
BBC business editor

For those retailers who thought 2004 was really tough, the message now is: hold on to your hats.

Next casual wear
Next and other retailers are struggling

All the signs are that the next 12 months could be even more difficult, perhaps one of the bumpiest rides on the High Street in modern times.

Within the past 24 hours, three of Britain's most admired retail names - Sainsbury's, Next and Boots - have reported ghastly numbers.

And figures from the Office for National Statistics show that retail sales for the last three months grew hardly at all (0.2%) on the previous quarter.

Widespread problem

Boots said pre-tax profits had fallen by 11%, but when exceptional costs were taken into account the drop was 26%.

High Street
The High Street is set to become less busy

Sainsbury's delivered the sharpest decline in its profits for 135 years, a fall of 97.5% to just 15m.

And Next warned that its underlying sales had slipped by 6.3% during the first 15 weeks of this year, a shock that sent shivers through the City.

For several years, Next has been the leader of the pack, the star of the retail show. If it is suffering this badly, how awful must trading be elsewhere?

Accelerating slide

Well, we won't have to wait long to find out.

Next week, Marks & Spencer unveils its results and most analysts are expecting a pretty ugly outcome.

Some 10 months after Philip Green's proposed 400p-a-share bid was rebuffed by the M&S board as "significantly undervaluing the company", M&S shares are down to 330p.

That price reflects not just problems specific to M&S but a general and perhaps accelerating slide in the retail sector.

The British Retail Consortium said that like-for-like retail sales in April were down by 4.7%, the worst monthly fall since the trade body started collating data in 1995.

Companies confirming this trend include Kingfisher, Matalan, Signet and Jessops, all of which have recently told investors that UK business was much worse than had been expected.

Bad debts

The prime cause of this gloom is growing anxiety among British consumers, who are at last having a reality check after years of borrowing eagerly to fuel a spending boom.

UK shoppers
British shoppers who had been borrowing to buy are now cautious

It seems that five interest-rate rises in 18 months have taken their toll, as have fears that taxes will have to rise to fill a hole in government finances.

Evidence of distressed borrowers struggling to meet their commitments comes in almost daily.

Debt charities and credit industry bodies have been flagging up for some time that a growing number of heavily indebted people are simply unable to service their obligations.

Their fears were reinforced this week when HSBC, Britain's biggest bank, warned that UK consumer credit quality is deteriorating, and Sainsbury's Bank revealed that its provision for bad debts had more than doubled to 64m.

Add to this a worrying jump in the number of court applications for home repossessions, a cooling of house prices and a sharp rise in the level of UK personal bankruptcies and it becomes easy to understand retailers' woes.

Bleak future

Not all shopkeepers will suffer in 2005-6.

The best-managed, those with fresh ideas and must-have products will, of course, outperform.

But the high tide of consumer spending that floated some pretty average retail boats has long since passed, leaving many operators stuck in the mud.

For them, the news is likely to get worse before it improves.


SEE ALSO:
High Street trend remains gloomy
19 May 05 |  Business
April slowdown hits retail sales
10 May 05 |  Business


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