Is John Lewis's admission yesterday that sales in its department stores last week were down nearly 5 per cent on a year earlier, following a fall of 1 per cent the week before, just a weather-induced blip, or is it a harbinger of something more serious to come. Few retailers outside the big supermarket chains are expecting a bumper Christmas, and some of them, particularly in the clothing sector, are positively dreading the festive season.
A profits warning this week from Austin Reed, together with news that like-for-like sales in the 15 weeks to 22 November were down a sickening 11.7 per cent, seemed to confirm the air of doom and gloom that has begun, this past couple of months, to hang over the retail sector. It is still too early to write Christmas off as a disaster for retailers. Christmas shopping has become more last minute in recent years than it used to be, with a growing proportion of buying concentrated towards the last two weeks. Yet it is small wonder that some on the high street fear the worst.
The Martin Hamblin GfK consumer confidence survey published earlier this week, the first such survey to be conducted since the November interest rate hike, showed that optimism has fallen to its lowest level since the start of the Iraq war and the aftermath of the 11 September terror attacks. Work it out for yourself. Even before the interest rate rise, which adds to the cost of a mortgage and other forms of debt, disposable incomes were falling, thanks largely to rising local and central government taxation. For the first time in quite some years, people are starting to feel just that little bit worse off.
More interest rate rises in combination with the near certainty of further rises in taxation spells only one thing. Less money for consumption. Up until now householders have been happy to fund the difference between their spending and income with ever higher levels of debt. That process may have reached its high water mark.
There are other factors at work too. Austin Reed, Marks & Spencer, Matalan, John Lewis, French Connection and the rest may be feeling the pinch, but there is no such squeeze at Britain's two leading supermarket chains, Tesco and Asda. Helped primarily by strong growth in non-food lines, sales are positively soaring. Long gone are the days when the supermarket groups confined themselves to food. Visit the Tesco Extra in Cardiff, a vast great warehouse of a place, and at least half the floor space is devoted to non food, from clothes, to toys and golf clubs, much of it selling at rock bottom prices. Salesman that he is, Tony De Nunzio, managing director of Asda, wears suits he buys at his own supermarkets. They are hardly Armani, but they are perfectly presentable and at £89 for something that would retail at more than £200 on the high street, who's going to be sniffy about them?
One of the interesting features of non-food lines at supermarkets is that many of them are bought and sold in small job lots, mirroring the practice of street traders, or the more successful high street clothes retailers, where the emphasis is on high turnover of product lines. This enables the supermarkets to buy at deep discounts, and to use non food as a promotional tool, attracting customers into the store on the off chance of a bargain. For instance, there you are doing your Saturday shopping at Tesco and all of a sudden it is announced over the Tannoy that there are 50 Dyson vacuum cleaners available on a first come first served basis.
One vacuum cleaner bought at Tes¶co is one less sold at John Lewis. What we are beginning to see is the Wal-Martisation of the British high street, with a growing proportion of all retail taking place through supermarkets. It used to be butchers, bakers and greengrocers that would complain about the destructive power of the supermarkets. The way things are going, they'll soon be joined by the department stores and clothing retailers. Small wonder that high street retailers are huddling together for warmth this Christmas.
No apologies for returning to the declining fortunes of the dollar for the second time this we¶ek. The dollar's distress is turning into one of the most significant currency plays of the modern age. What the long-term consequences might be are still far from clear, but whatever the fall out, we can be sure the world will look quite different once the process is played out.
The dollar is falling because America's current account deficit keeps growing. Over the past two years, the trade deficit has spawned a twin, a burgeoning federal budget deficit. Neither deficit matters too much as long as foreign investors are prepared to finance them. The Americans spend, foreigners lend. Up until quite recently, that has remained the case, but now there's evidence of a growing flight of capital. Interest rates are just too low, and the American business recovery still too fragile to continue attracting the world's capital flows in the quantities necessary to support US spending on the current scale.
There are two big exceptions to this generalisation - Japan and China. According to figures published yesterday by the Japan Ministry of Finance, Japan has spent ¥1.6 trillion, or nearly $15bn, in yen-selling currency intervention this month alone, bringing the total amount spent this year by the Japanese authorities to ¥17.8 trillion. The great bulk of this money would have been used to buy dollars in an effort to halt a further strengthening of the yen against the greenback. China is forced into similarly stratospheric currency intervention in order to support its dollar peg at the current depressed level.
Most of the American trade deficit is with China and Japan, which support their exports to the US by, in effect, lending the US the money with which to buy them. How much longer that can continue is anyone's guess, but it is not always as an agreeably symbiotic relationship as it might seem. America's growing trade imbalance with the Far East is costing jobs in America's heartland. The Bush administration has responded with trade tariffs, admittedly quite limited in scope so far but with the potential to get much bigger.
On the other hand, the American stance on these matters is an ambivalent one. Americans have grown rather fond of the seemingly unlimited supply of cheap Far East goods, and fonder still of the Far East's apparent willingness to fund their purchase at exceptionally low rates of interest. In any case, but for currency intervention by Japan and China, the dollar would have fallen even further than it has.
So if both America and the Far East gain from the American trade imbalance, who loses? As things stand, the biggest loser looks like being Europe. Currency intervention in the Far East prevents the dollar from falling too far against the yen while for the time being there can be no movement at all against the Chinese renminbi. Yet the steam has to escape somewhere, so it does so through the euro, which has appreciated nearly 15 per cent against the dollar this year alone. The upshot is that European exports have become progressively less competitive on price, while imports from the Far East are cheaper than they have ever been. China, which should be a huge export market for the heavy industry of the German Rhineland, is instead the playground of the Japanese. The fact of the matter is that Europe needs a depreciating currency just as much as the US to restore growth and employment, but it is the US which is getting the currency boost.
There has been much sabre rattling over France and Germany's flouting this week of the Stability and Growth Pact rules governing the single currency, not least by the European Central Bank, whose officials have hinted strongly that they may need to raise interest rates to deal with member states' lack of fiscal discipline. This is just pointy headed nonsense. The need in Europe right now is for further cuts in interest rates, so as to reduce the currency's supposed attractions to international capital. Europe needs a rise in interest rates like a hole in the head, yet bizarrely, policy makers seem stuck in some kind of puritanical timewarp that requires constant vigilance and self flagellation, lest Europe succumbs into the sins of American profligacy.Reuse content