The credit crunch: High street blues

Britain's economic slowdown has forced 11 chains to shut outlets this year and others are bound to follow
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The Independent Online

Shoppers beware. The credit crunch is claiming more retail casualties than at any time since the early-1990s' recession and experts warn there will be worse to come, spelling the end of the high street as we know it.

As the UK's debt-fuelled spending splurge fizzles out, doors are slamming shut for the last time at chains as far apart as Mexx, the US-owned fashion retailer, and Ethel Austin, purveyor of value womenswear,

Since January, 11 mostly midsize chains, selling anything from books and bedding to menswear, have fallen into administration. JJB Sports, the camera sellers Jessops and Blacks Leisure, the outdoor specialist, are all shutting swathes of their estates and others – notably DSG, the group behind Currys and PC World – are working on closure programmes.

Matthew McEach-ran, retail analyst at Kaupthing, Singer & Friedlander, said: "It has become uneconomic for retailers to have the proliferation of stores they used to have given rising rental and staffing costs, especially now that so much business is moving online."

Even high street titans share the pain: Sir Philip Green, the billionaire owner of Topshop and BHS, recently admitted that "nobody is being excluded" from "a market that is probably as tough as I've seen it". And Sir Stuart Rose, Marks & Spencer's chief executive, has said the slowdown could last until 2010.

A quarter of all retailers listed on the stock market issued negative trading updates, or profit warnings, in the first quarter of the year, according to accountants Grant Thornton. And March saw the worst underlying sales performance from the UK high street for nearly three years, according to the British Retail Consortium.

"The most visible sign of a slowdown will be retailers feeling the heat. This is very much a consumer-led affair," said Richard Boys-Stones, retail restructuring partner at PricewaterhouseCoopers. Vince Prior, who heads the retail advisory team at the property group Jones Lang LaSalle, said: "The first quarter was especially tough coming after a bad Christmas. I expect to see the list of retailers going into administration grow."

Restructuring specialists warn that "big box", out-of-town retailers selling discretionary items such as electrical appliances and furniture are most at risk, followed by medium-sized chains, with 200 stores or fewer, and general retailers. One analyst said this downturn could even see off Woolworths, which has limped along for years barely making money.

Among the furniture chains already struggling are the sofa retailers ScS and Land of Leather which issued a profit warning in January. Even Sweden's Ikea, which celebrates 21 years in the UK this October, has admitted sales are being hit. Chief executive Anders Dahlvig is set to slash prices.

Also under threat is the clutch of retailers snapped up by private equity firms at the height of the consumer boom. This downturn has already claimed the scalps of two – shoe sellers Dolcis and Ethel Austin. Analysts said others looking vulnerable include the crop of chains owned by Iceland's Baugur, which last week announced it had put the loss-making MkOne fashion stores up for sale.

Nick Bubb, retail analyst at stockbroker Pali International, said: "There is no doubt that life is very tough out there. The only debate is about how quickly we are getting into early 1990s-type conditions. Generally the weaker chains will go under: it's the law of the jungle."

Although being forced into administration does not automatically signal the death of a brand – often rivals will swoop in for knock-down prices as Shoe Zone did with Stead & Simpson – it does mean shoppers will see far fewer of its stores around. Restructuring experts reckon that once a retailer has hit the buffers at least a quarter of its outlets will close. Sometimes the figure can be much higher: half of Dolcis' 185 stores shut. Which means fewer jobs in a sector that employs three million people in the UK.

So does that mean boarded-up or charity shops taking over the nation in months to come? Mr Prior thinks not. He is counting on expansion-hungry international retailers such as Spain's Inditex, which owns the Zara brand, restaurants like Nandos and services ventures including Dove's spa to fill the gaps. Then there are the mighty supermarkets, which are certain to grab any opportunity to expand their minimarket formats.

Either way, the future high street could look considerably different from the one we now take for granted.

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