Feel-good consumers exude a glow

1997: A preview of the year ahead; Retailing

1996 was the year when retailers finally began to believe in a consumer recovery. High street spending was boosted by lower interest rates and a housing market which started to show signs of a revival. If anything 1997 should be even better.

Consumer spending is still growing and should be buoyed yet further by windfall gains from the Halifax and Woolwich Building Society flotations.

The forecast 7-8 per cent increase in house prices this year will boost not just home furnishings and DIY retailers but the whole sector. A feel- good factor of sorts will cast a warmer glow.

1997 also promises to be a year of corporate activity in retailing. The mail order market is one that is ripe for shake-up. With Sears' Freemans mail order business likely to be sold to Littlewoods, a new era is already dawning.

But with Great Universal Stores under more dynamic management and Burton moving into the sector with the Innovations and Racing Green acquisitions the sector is already looking more interesting than it has done for years.

Also look out for a mail order move by Marks & Spencer. Britain's leading retailer already has a housewares catalogue. More are likely to follow.

Top of the list for corporate action is the rambling Sears group which had an accident prone 1996 which chief executive Liam Strong would probably sooner forget.

For Sears, and Mr Strong in particular, 1997 is a crunch year. With Freemans up for sale Sears looks more and more like a break-up candidate. Architect of the re-structure is likely to be Mr Strong himself who has found his position under threat. Sears could be spilt up into a series of smaller businesses with the highly successful Selfridges department store as a standalone business with healthy expansion prospects in other major cities. The womenswear chains which include Wallis and Miss Selfridge could form another group. If Sears' Christmas trading statement is un-impressive the clamour for a re-structure, or new management, will grow.

This year is also judgement time for another one of last year's losers - House of Fraser, the department store group. The new management under John Coleman will be given a period of grace to settle in and effect a turnaround. But if the long-awaited recovery is not forthcoming then the predators could move in.

The supermarket sector looks set for another fascinating year. 1996 was characterised by cut throat competition as Tesco, Asda and Safeway all profited at Sainsbury's expense. This year promises to see no let-up in the competition. But there is the added twist that all four of the big groups will be operating under new management. One question is how Asda will fare this year as Archie Norman takes a less prominent role.

But the bigger question is this - will 1997 see a Sainsbury renaissance? After a year on the ropes Sainsbury's needs a good run to claw back ground lost to Tesco. More details on the Sainsbury's Bank will be available this month and this could prove a key development as Sainsbury's attempts to re-claim the marketing initiative after a year during which it always looked to be following. Sainsbury's may need one of its rivals to slip up to really make headway but with so many strengths - including its brand name - the prospects of a turnaround look promising.

Indeed brands will be a key issue again this year. The high street and the supermarket sector are gradually polarising between the winners which have strong brand names and the rest, which do not. Next, Dixons, Argos and John Lewis are just some of the retailers whose brand strength has enabled them to develop market leading positions. The gap between them and the secondary retail players will continue to widen.

Finally, electronic shopping will make more progress this year. A new standard on the encryption of credit card numbers will make Internet transactions more secure and remove a major stumbling block to acceptance of the new medium.