Survival: the gift that is out of stock

Christmas trading represents the 'final throw of the dice' for some retailers, finds Simon Evans. So after Woolworths and MFI, who will be the next casualties?

Back in early September when The Independent on Sunday revealed that credit insurers had withdrawn cover to suppliers of Woolworths, the life support machine keeping the feeble but iconic retailer alive was in effect switched off.

At the time, Woolies' advisers rubbished the claims, only to perform an embarrassing U-turn days later with the admission at its half-year results that credit insurers had indeed withdrawn cover. The company also posted a £100m loss in six months of trading – one of the worst in its 99-year history.

At the same time, the banks acting as major creditors to Woolworths continued to play up the retailer's chance of surviving. "I really cannot understand why you press are so negative about Woolworths' chances; it really can be turned around, otherwise we wouldn't have backed it in January," said one banker.

But privately, as the events of the past few weeks have shown, they too had come to the conclusion that Woolworths was dead. And the decision to claw back their £385m had begun.

As Woolies was being carried away, MFI, the flatpack chain that was once the UK's biggest furniture retailer, worth more than £1bn in its 1980s heyday, was being bought by its management from its private equity backers. Less than two months later, MFI has also bitten the dust as the chances of any reversal of fortune have quickly evaporated.

Brian Roberts, research director at Planet Retail, says: "The Woolworths trading model has been broken for a long time. It was and remains a terribly vague offering. Woolworths has been a tale of under-investment and perhaps it can also be argued that poor management contributed to its demise. As for MFI, it has been under massive competitive pressure for as long as I can remember. It has never really shrugged off the stigma of poor customer service that many people received back in the 1980s. Woolies might come back in some guise. I very much doubt MFI will."

This weekend, prospective buyers are surveying the carcasses of both Woolworths and MFI. Administrators performing the carve-up operations of the companies have claimed multiple interest in both.

But the fallout from Woolies' collapse has already claimed a victim among its suppliers. Shares in Metro-dome, a company listed on the Alter-native Investment Market, lost a third in value as it disclosed it was owed over £300,000 by Woolies. Other casualties will emerge in the coming weeks.

The final failure of Woolies and MFI won't have come as a surprise to most. The timing, though, has spooked people – just ahead of the key Christmas trading period.

"Christmas is simply going to be the final throw of the dice for many retailers," says Mr Roberts. "There is going to be plenty more blood shed in the first quarter of next year."

Where that bloodletting takes place is now the macabre game being played by fund managers and analysts across the Square Mile. High on their list is the electronics retailer DSG, owner of the Dixons, Currys and PC World brands in the UK. Last week it posted a £30m loss and scrapped its dividend for at least three years. A 10-point plan instigated by chief executive John Browett seems to have had some positive effects but a poor Christmas period could see the group go under.

Suppliers to DSG recently had their credit insurance cover withdrawn from the group, with the same stance being adopted on Kesa Electricals, the owner of Comet, which has 250 stores up and down the country.

A look down the membership list of the British Retail Consortium yields little yuletide cheer for other players. Blacks Leisure, the outdoor clothing chain, is suffering badly. After posting dismal half-year losses at the end of October and scrapping its dividend, the group is seeking to restructure, attempting to pull out of key deals with the likes of surfwear brand O'Neill.

Jessops, the camera group that has seemingly lurched from one crisis to another, will unveil preliminary full -year results in the coming weeks that are once again expected to be bleak at best.

A trading update from JJB Sports is due in January that could also make grim reading, with City analyst Altium predicting that pre-tax profits could be as low as £9m for the full year – down from £34m the previous year.

Carpetright's 500-plus stores in the UK and Ireland have been hit hard in 2008 and this is expected to reflected in its results on 16 December.

"What I worry about is that through September and October the consumer felt that [the credit crunch] was a London-based problem, and so they delayed spending," says Freddie George, retail analyst at broker Seymour Pierce. "In November, people realised that this situation is actually serious, and so they are not just delaying spending but cutting it."

Signet, the jewellery chain that owns brands such as Ernest Jones and H Samuel, last week posted alarming pre-tax losses for the 13-week trading period to October of $23.6m (£15.4m), against a profit of $3.8m last year.

"Things all sound terribly grisly and ghastly at the moment," says Simon Murphy, fund manager at Old Mutual Asset Managers. "If a retailer is going to survive through this downturn, it is going to need to have plenty of cash and very little debt. There are lots of cheap companies out there but, as Woolies has shown, you can lose your shirt quite easily. I want to be able to sleep at night."

Those savvy and outspoken knights of the high street, Sir Alan Sugar and Sir Philip Green, have vast fortunes built on the consumer, but even they have been caught out by recent events. Sir Alan tried to buy a stake in Woolies, while Sir Philip was forced to abandon his attempts to take over the struggling suits group Moss Bros last week, saying it "was not the right time".

The other knight of the high street, Sir Stuart Rose, has also had a tough time of late and, if early readings are anything to go by, is set to face an even tougher Christmas. The once unthinkable scrapping of the Marks & Spencer full-year dividend and, perhaps, the scrapping of the once seemingly omnipotent Sir Stuart, could be around the corner.

It might be doom and gloom for most on the high street but some are bucking the trend. The cut-price clothing retailer Primark and the cheap-and-cheerful food groups Aldi and Lidl are prospering as consumers look to make the pound in their pocket go further. Poundland recently opened its 200th store in Britain.

"Beyond all this hysteria, you've got to remember that many firms are still turning a profit in the retail sector," says Old Mutual's Mr Murphy. "Time and time again, across all industries, it has been shown that where there are massive capacity withdrawals, the companies that are left standing prosper on the other side," he adds. "Take Woolies: its demise is going to play very well for HMV."

Last week the broker Deutsche Bank predicted that the HMV chain, which has had its fair share of problems throughout the past decade, is likely to be a Christmas success: "Growth in the games market and its low-ticket nature should make it a winner."

But winners will be few and far between. Last Friday the CBI said that 62 per cent of retailers reported lower sales in November compared with a year ago, while 37 per cent of those surveyed said they were expecting a poor Christmas.

In anticipation of a dire festive period, the discounting frenzy among retailers has already begun.

John Lewis last week became the latest to plunge headfirst into the discounting pool, slashing up to 25 per cent off some of its goods. Debenhams, the Sir Philip Green- owned BHS and Marks & Spencer have all held 20 per cent jamborees of late, with the promise of more to come.

"Once the dust has settled on the Christmas and New Year trading period, we'll find out who has survived," says Mr Roberts at Planet Retail.

The bloodiest Christmas trading battle in retail history is set to yield more casualties soon.

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
sportDidier Drogba returns to Chelsea on one-year deal
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
PROMOTED VIDEO
Sport
Louis van Gaal would have been impressed with Darren Fletcher’s performance against LA Galaxy during Manchester United’s 7-0 victory
football
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Sport
Rhys Williams
commonwealth games
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
News
Isis fighters travel in a vehicle as they take part in a military parade along the streets of Syria's northern Raqqa province
i100
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
fashionLatex dresses hit the catwalk to raise awareness for HIV and Aids
Travel
travel
Life and Style
The veteran poverty campaigner Sir Bob Geldof issues a stark challenge to emerging economies at the Melbourne HIV/Aids conference
health
Arts and Entertainment
Benedict Cumberbatch and John Malkovich talk Penguins of Madagascar at Comic-Con
comic-con 2014Cumberbatch fans banned from asking about Sherlock at Comic-Con
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
filmGuardians Of The Galaxy should have taken itself a bit more seriously, writes Geoffrey Macnab
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.

iJobs Job Widget
iJobs Money & Business

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Graduate Recruitment Resourcers - Banking Technologies

£18000 - £25000 per annum + OTE £40,000: SThree: Huxley Associates are looking...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform