FOCUS: THE ELUSIVE SHOPPER - Meltdown on the high street

The economy is booming and we've got money to spend - so why are retailers feeling the pinch?

It's carnage out there. Consumers are holding off spending until the last minute hoping to get a bargain. We are having to cut prices to the bone just to get people through the doors. I've never seen trading conditions like it."

So said one retailer on London's Oxford Street this week. It is a view widely held in Britain's beleaguered retail sector. As millions of shoppers head for the stores to start their Christmas shopping this weekend they will find shop windows festooned with "Pre-Christmas Sale" signs offering 20 per cent or even a third off.

It is not just the smaller stores that are succumbing to the discount frenzy. Marks & Spencer has been cutting 20 per cent off all cosmetics, toiletries and childrenswear this weekend following its promotion on menswear and its "Autumn windfall" voucher campaign. House of Fraser, the department store group, ran a "One Day Spectacular" on Thursday offering up to 20 per cent off selected items.

C&A has cut up to a third off some ranges such as men's suits. Struggling Bhs is gearing up for major price-cuts as part of its desperate fight to maintain its market share.

The severity of the situation should not be underestimated. Storehouse, the retail group which owns Bhs and Mothercare, reported a pounds 22m loss earlier this month and the group now faces break-up. Arcadia, the former Burton group, which owns Top Shop and Dorothy Perkins, is also suffering as profits fall. Smaller rivals could be forced to the brink of bankruptcy.

According to Richard Hyman, head of Verdict, the retail consultants, these conditions are here to stay. "We are at a major watershed in the development of UK retailing," he says. "Major structural changes are taking place that are not part of the normal cycle. This is how it's going to be; much more competition and constant downward pressure on prices."

But why is this happening? Why is the high street apparently in the grip of recession when the economy is so strong? Official figures show that retail sales in October were 4.7 per cent up on the same month last year. That is very healthy demand. It is true that the value of those sales was only 3.5 per cent higher as stores had to cut prices to sell their goods but even this figure is perfectly respectable.

UK households are also feeling wealthy. Wages are up, unemployment is falling and house prices are rising strongly. There is also an increase in "equity withdrawal" whereby homeowners cash-in on the rising value of their property by increasing their mortgage and spending the proceeds.

According to Mr Hyman of Verdict, UK retailers had life relatively easy right up until the 1970s because Britain had one of the lowest ratios of shopping space to population of any major industrialised country. All retailers had to do was open more shops and sit back and take the money.

As they grew, their expansion was balanced by the closure of smaller retailers allowing the larger players to clean up market share. But since then there has been an explosion of retail space leading to a chronic over-supply problem.

Mr Hyman says: "Competition is now more intense and so retailers have to drive more sales through their existing outlets. To do that they either have to have a brilliant competitive edge or offer the lowest prices. UK retailers aren't used to that."

This over-capacity has been made worse by the twin effects of the Government's "Rip-Off Britain" campaign and the arrival of Wal-Mart, the giant US discount specialist which took over Asda in June. The Wal-Mart threat has forced not just the major supermarkets such as Tesco and Sainsbury's to cut prices but high street retailers such as Boots too. The "Rip-Off Britain" campaign has struck a chord with consumers turning Britain into a nation of bargain- hunters.

This has had a huge effect on the high street. Broadly speaking, the discounters such as Matalan, New Look, Primark and Peacocks are doing well at the bottom end of the market. The quality branded chains such as French Connection, Oasis and Zara are doing well at the top. The middle ground, which incudes Marks & Spencer and Bhs, is being relentlessly squeezed.

Indeed retail experts say the days of M&S-style mass-market retailing are over. "M&S cannot seriously expect a 20-year-old woman to shop at the same rack as a 60-year-old grandmother. They will have to segment their ranges," one says.

Barry Gibson, chief executive of Littlewoods, says shoppers now want to buy "what they want when they want and how they want". Instead of being dictated to by shops they are demanding, and getting, more control through newer channels such as direct mail and the internet.

There is also a shift in spending patterns as an ageing population spends more on services and household items and less on physical goods. Also, as an economy develops, we have more of the things we already need. It is harder to persuade consumers to replace them.

This helps explain why household goods are one of the few strong parts of consumer spending at the moment along with foreign holidays. Retailers like Dixons are doing well as sales of electrical goods are being driven by developments in digital technology and the increasing popularity of mobile phones.

Indeed, the increasing demand on household "wallets" is a key factor affecting clothing sales. Households are spending an increasing proportion of their disposable income on mobile-phone contracts, satellite TV subscriptions and healthclub memberships. This money has to come from somewhere.

Retailers have not helped themselves by being slow to adapt to consumer demands. A wander down Oxford Street and Regent Street, two of London's busiest shopping thoroughfares, reveals several big-name stores, such as Hamleys and DH Evans, that look as if they haven't rethought their marketing strategies since the 1970s. As Nathan Cockrell, retail analyst at Morgan Stanley, says: "UK retailers have done a pretty poor job. They stick to the same old seasonal routine with mid-season and end-of-season sales."

But new challengers are changing their stock much more regularly. European companies such as Zara and Hennes & Mauritz change some of their range every fortnight.

Where will all this lead? According to Jim Hodkinson of New Look, the pace of change means that several UK retailers will have to merge. "There are too many clothing retailers and we will start to see some consolidation," he says. This is also likely to happen in the department-store sector where companies such as Allders and House of Fraser are seen as merger candidates. In the meantime, consumers can reap the benefits of the retailers' pain as prices fall lower and lower. We have never had it so good.

Suggested Topics
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
News
people
News
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
Have you tried new the Independent Digital Edition apps?
Life and Style
ebookNow available in paperback
ebooks
ebookPart of The Independent’s new eBook series The Great Composers
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Recruitment Genius: Project Implementation Executive

    £18000 - £23000 per annum: Recruitment Genius: They work with major vehicle ma...

    Recruitment Genius: Chiropractic Assistant

    £16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...

    Recruitment Genius: Digital Account Executive - Midlands

    £18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

    Recruitment Genius: Web Developer

    £28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...

    Day In a Page

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own