BBC News Online: Business: The Economy

Spending trouble in store

Shoppers have been staying away in droves, leading to a third successive slump in half-year profits.

It's a big comedown for the nation's former favourite store, which has already shed hundreds of jobs and endured a management shake-up.

But M&S is not the only store suffering at the moment.

Toy stalwart Hamleys, department store C&A and chains Storehouse and Sears have all been having it tough.

But at the same time, interest rates are at their lowest for about 20 years, inflation is well under control and the UK's finances are, by all accounts, heading for a strong recovery.

So, with the economy booming, why are so many big retailers struggling?

Housing boom 'rubbish'

According to experts, the answer is not that the goods are not up to scratch, nor has online retailing stolen huge chunks of business from the high street. It has more to do with shoppers' confidence and economic patterns.

Some observers even cast doubt on the state of health of the economy.

Richard Hyman, chairman of retail research firm Verdict, said: "Most retailers are suffering - it's not just the big names.

"I don't think the consumer economy is booming at all. All this stuff about the housing boom is rubbish.

"Prices are rising because people are moving and there are not enough homes, but there are a lot of people with vested interests in saying the housing market is booming - such as building societies and estate agents. The number of homes sold this year is still below the 1997 rate so I think a housing boom is unlikely.

"The two latest interest rate rises show the government isn't very confident about the economy - it thinks it's moving too fast and is acting to slow it down.

"So consumer spending in stores isn't exciting. Last Christmas, retailing had its worst year for 20 years and this year will be a bit better, but only because of the Millennium effect. Without that, it would be almost as bad as last year.

"Most retailers are under pressures that they haven't been under for many years - weak demand and excess supply.

"In addition, many have undergone major expansion of their square footage in the 1990s."

John Lewis has been hit less hard than most. Although profits fell sharply this year, the famous department store still generates twice as many sales per square foot than Debenhams, says Mr Hyman.

Loans dear

Among most struggling retailers, the competition to draw customers has even led to a lowering of prices, he believes.

"There's more-or-less negative inflation in retailing. Not only is there no rip-off Britain, but retailers are delivering lower prices," he says.

Consumers are benefiting - but a consumer boom is still a long way off.

Another factor influencing shoppers is likely to be borrowing rates. Although interest rates fell steadily for two years after Labour came to power in May 1997, loan rates have not fallen likewise.

Interest on a loan from a bank, building society or other finance company can still be anything up to 20%.

So while householders may be paying about 6% or 7% on their mortgage, they could be paying 18% for the extension.

Nor have credit card rates dropped. A balance charged at 12% seems like a good deal by comparison with general loans.

Consumer caution could also be an unwanted side-effect of the government's much-vaunted end to the boom-and-bust cycle under the Conservatives.

In the 1980s, luxury goods were all the rage and suddenly seemed affordable to millions of ordinary people.

Now, consumers have taken to heart the 'no more boom-and-bust' message and are playing hesitant.

Elderly neglected

Additionally, there is one crucial factor most store bosses have overlooked: the ageing population.

People are living longer and the elderly make up a bigger proportion of the population.

Not only do elderly people traditionally spend less, but most stores are targeted at young people.

So they have to be increasingly competitive to try to retain ever larger slices of a static market.

Mr Hyman said: "Retailers have always been poor at attracting older people. If you are in a department store and need to sit down, where do you go? Probably to the loo - which is on the 18th floor!

"A few are beginning to think about older customers but it's going to take time."

Relevant Stories

Job fears over Marks contract cut (02 Nov 99 | Scotland)
Sears sells womenswear business (08 Jul 99 | The Company File)

Internet Links

Marks & Spencer
Hamleys
Storehouse

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