Jeremy Warner: Retailers face up to a slimline future

Outlook First housebuilding, now retailers. After banking, these are the industries in the front line of the deepening economic and financial crisis, though there are plenty of others fast following up the rear. Perhaps oddly, no major housebuilder has yet gone bust, but in retailing they are already dropping like flies. Woolies may be the biggest and most iconic name to have bitten the dust so far, but it is only the outsized tip of the iceberg. Scores of smaller retail chains have been forced to quit the high street over the past year.

Unfortunately, the process is far from over. To the contrary, the number of retail insolvencies is expected to climb sharply in the immediate aftermath of Christmas.

The reason it is possible to be precise about the timing is that the post-Christmas period is when retailers are traditionally at their most cash rich, with the tills swelled by seasonal shopping but before the money is depleted by quarterly rent payments, which are usually made in late January or early February, or payments to those that have supplied the Christmas fare. So if bankers are going to pull the plug, this is the time to do it. Never mind other creditors, it is their own interests that bankers look after first. Insolvency is a cynical business.

Woolworth's didn't conform to this pattern because the cash position in the run-up to Christmas had been reversed. Everyone knew the skids were under the company, which meant that suppliers couldn't get credit insurance and therefore demanded cash up front. Bankers were faced with a situation where there was a cash outflow as the season of goodwill drew near, rather than the usual inflow.

With half-year results to announce, John Browett, chief executive of DSG International, the Dixons, PC World and Currys electricals retailer, was forced to spend most of yesterday trying to convince the City and the financial press that he wasn't about to go the same way. As with Woolies, credit insurers are said to be nervous about underwriting suppliers to DSG, while sales in the group's British, Spanish, Italian and central European operations seem to be falling like a stone.

A major electricals retailer in the US, Circuit City, has already suffered the same fate as Woolies in the UK. Worries about the company's solvency have caused credit insurance to dry up, forcing the company to pay cash for supplies and driving the company into Chapter 11 bankruptcy protection. Might not DSG find itself in a similar bind?

Absolutely not, insists Mr Browett. Unlike either Woolies or Circuit City, DSG is relatively ungeared and is in market leading positions in most of the countries it operates in. The dividend has been axed to save cash, but however bad things get in the core British business, the group's wide geographical spread with strong and highly profitable businesses in Scandinavia should enable the company to see out the recession relatively unscathed.

Yet whatever Mr Browett says, it is easy to see why investors are running scared. Woolies was a special case with serious issues around structure and format, but in general the retailers hit hardest by the downturn are those such as DSG selling relatively big ticket items heavily dependent on credit card or consumer credit.

What's more, unlike almost every other area of retailing, which is downsizing fast to cope with the ever shrinking market, capacity in electricals is set to expand with the arrival on these shores of Best Buy from the US determined to eat DSG's lunch. We'll see.

The bottom line is that across the retailing sector as a whole, we are into a period of massive consolidation in which the number of high street outlets is likely to shrink dramatically. Strange to recall that less than two years ago, virtually every retailer worthy of the name had hugely ambitious plans for expansion. Even at the time, it was hard to see how the debt-laden British consumer could possibly accommodate all this extra space, but today the plans of yesteryear look like complete lunacy.

For years, Britons have been living beyond their means on the back of an unsustainable credit boom. Retailing expanded to match. If we have, on average, been spending roughly 10 per cent more per year than we were earning, which if anything is probably an underestimate, then retail space will have to shrink by at least that amount to come back in line with means, and that's before taking account of the hit to demand from rising unemployment. That's quite an adjustment, much of which is still to come.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
Fifa corruption: Strip Qatar of the World Cup? Not likely

Strip Qatar of the World Cup? Not likely

But if a real smoking gun is found, that might change things, says Tom Peck
Twenty two years later Jurassic Park series faces questions over accuracy of the fictional dinosaurs in it

Tyrannosaurus wrecked?

Twenty two years on, Jurassic Park faces questions over accuracy
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
Genes greatly influence when and how many babies a woman will have, study finds

Mother’s genes play key role in decision to start a family

Study's findings suggest that human fertility is still evolving
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
England can win the Ashes – and Elvis Presley will present the urn

England can win the Ashes – and Elvis will present the urn

In their last five Test, they have lost two and drawn two and defeated an India side last summer who thought that turning up was competing, says Stephen Brenkley
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)