Business outlook: Stores face a year of belt tightening

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There is little doubt that 1998 will be a tougher year on the high street. After last year's benign conditions, with consumer spending boosted by building society windfalls, rising house prices and low interest rates, retailers will be looking ahead with some trepidation.

The windfalls have been either spent or saved, interest rate rises are starting to bite and the engine of house price rises looks to have run out of steam.

The evidence of a slowdown is with us already. November sales were sluggish and Christmas trading has been patchy, with profits warnings from Oasis, the fashion retailer and Mulberry, the luxury goods group.

The opening of two big shopping centres at Cribbs Causeway near Bristol and Trafford Park in Manchester will add further capacity to the sector at the wrong point in the cycle.

Another trends will be the urge to demerge. Sears will spin off Selfridges, WH Smith will demerge Waterstone's and the Debenhams demerger from Burton will be finalised later this month. The Jaeger and Viyella retail businesses are also in the process of being demerged from Coats Viyella. This may raise the possibility of corporate activity, particularly in department stores.

The World Cup in France in June should provide a boost from sports retailers. The planned flotation of Sports Division could spark a battle royal with JJB sports.

Technology will also make its mark on the sector this year with the launch of digital television. Expect great fanfare but a slow start to consumer buying.

And finally, the new issues market will be interesting, given the sector's recent wobbles. Monsoon, the women's fashion retailer, will provide the first test.

- Nigel Cope