Hope on the High Street

Official figures show that retail sales are rising and several big names are prospering. So is the downturn over, asks James Thompson

They are whispering it quietly, but after better-than-expected sales in March and April, many retailers are suddenly feeling much happier about their prospects. A week of bullish trading updates from leading retailers – Primark, Debenhams, Thorntons and Burberry – ended yesterday with new figures from the Office of National Statistics in a similar vein. Retail sales volumes rose by 0.3 per cent last month from February and were up by 1.5 per cent on last March.

It is only a month since the 25 March rent day when many industry experts were forecasting a fresh wave of retail collapses, but for now at least, the mood music seems to have changed for the better.

Paul Wilkinson, co-founder and partner at Wilkinson Williams, the retail warehouse property specialist, says: "Some of the more cataclysmic forecasts about the retail sector look a bit wide of the mark – the time of maximum pessimism has passed and there is a general levelling off of falling sales."

Not that retailers are ready to pop open the champagne just yet. For a start, trading conditions in March and April have been distorted by a number of factors, notably the unusually balmy weather, which sharply contrasted to the near-Arctic conditions in February. They have also benefited from a late Easter, which typically brings shoppers out of their hibernation in greater numbers.

Matthew McEachran, an analyst at Singer Capital Markets, says: "It is hard to envisage the level of growth over the last four to six weeks continuing if the pressures in the consumer economy persist, such as rising unemployment."

Another problem for retailers is that the average percentage of disposable income saved by customers is forecast to continue rising, as consumer pay off their debts and mortgages instead of putting money through their tills. According to Verdict Research, the savings ratio fell to minus 2.5 per cent in the third quarter of 2008, but will rise to 5.2 per cent this year and then again in the years ahead before peaking at 8.4 per cent in 2012.

That will hurt big-ticket retailers, which are already struggling. The ONS said yesterday that sales volumes at household goods stores, for example, tumbled by 6.5 per cent in March.

Moreover, while the overall figure was positive thanks to textile, clothing and footwear retailers delivering sales volume increases of 8.4 per cent, the depreciation of sterling will push up clothing prices in the second half of the year.

Andy Street, managing director of the department store John Lewis, says that its sales of furniture and floor coverings fell by 14 per cent in March, but its fashion sales grew by 5 per cent. "We are not seeing an upturn in big ticket items, and for that to happen we have to see an upturn in the housing market," he said.

Indeed, the fact that sales at one of the sector's strongest players are down by 6.6 per cent for the 11 weeks to 18 April suggests that a wider recovery is a distance away.

Still, property landlords, who fear being burdened by scores of empty shops, are helping by agreeing to rental concessions, such as allowing retailers to pay rents monthly instead of quarterly in advance.

Phil Duffy, a partner at the restructuring specialist MCR, said: "We are working with four retailers where we have managed to get better deals out of landlords because the landlords do not want empty shops."

Mr Wilkinson added: "It is still a very difficult market and you have got to offer substantial incentives, such as two to four years' rent free or other capital incentives to retailers."

A big test of just how much attitudes between retailers and landlords have changed will come on Monday when the troubled sportswear retailer JJB faces a critical vote by unsecured creditors on a company voluntary arrangement – an insolvency procedure which it will use to compensate landlords for the 140 retail stores it plans to close. Sources expect it to secure a "yes" vote that will save it from administration.

In short, few retailers are willing to stick their heads above the parapet and say "the worst is over". But they are more optimistic than they were several months ago.

But losers still emerging: Bay Trading in administration

Alexon has placed its beleaguered Bay Trading chain into administration, putting 1,000 jobs at risk. The fashion group yesterday appointed Deloitte as administrator to its subsidiary Epcoscan, which trades as Bay Trading, after it succumbed to losses and its credit insurer withdrew cover. Deloitte said it would continue to trade Bay Trading's 171 stores and 97 concessions as it seeks a buyer.

Alexon insisted its other business, which has 1,083 outlets including the Ann Harvey women's chain and the Alex & Co and Kaliko brands, remain profitable and are unaffected. Jane McNally, the chief executive of Alexon, said: "Our remaining core Alexon Brands have a strong heritage and I firmly believe there is an exciting opportunity for them."

For its financial year to the end of January, Alexon Group posted a pre-tax loss, after exceptional items, of £27.7m, compared to a profit of £12m last year. Those results, published earlier this week, also warned there was "significant doubt over the ability of the group in its present form [with Bay Trading] to continue as a going concern". Given this uncertainty, Alexon said yesterday that its credit insurer had pulled cover for suppliers to Bay Trading.

All is not well at Monsoon either, where the fashion retailer this week warned staff that it is considering a redundancy programme.

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