Baugur hunts for bargains amid gloom

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The Independent Online

Baugur Group, the Icelandic investment group, is ready to take advantage of plunging retail share prices to go bargain-hunting on Britain's gloom-laden high street, starting with a possible bid for Moss Bros.

Iceland's biggest retailer is said to be considering an offer for the menswear and formal-hire chain at just over the current share price it closed at 37p on Friday. Moss Bros is understood to have received no approach from Baugur, which already owns 29 per cent of the company.

Moss Bros shares fell sharply on Wednesday after the chain became the latest high street retailer to issue a profits warning before the crucial Christmas period. The stock has lost half its value this year, valuing the company at 35m.

Philip Mountford, the company's chief executive, said this Christmas would be the toughest in his 20 years of retailing. The retail sector was already reeling from a poor summer. With debt-laden consumers tightening their belts after a series of interest rate rises, many retailers are slashing prices to get shoppers through their doors.

Further signs of weakening consumer confidence are revealed today as retailers warn that last week's cut in interest rates was not enough to revive spending on the high street.

The economy is the biggest concern for consumers in the coming six months, according to a survey from the British Retail Consortium (BRC) and market research company Nielsen. This is the first time the econ-omy has topped the list since the survey began in 2003.

But Baugur, which is privately owned, is said to be happy to take a medium-term view to snap up bargains at depressed prices and add to its UK retail investments. Other holdings include House of Fraser, Hamleys and Iceland.

Baugur and Moss Bros declined to comment.

Falling valuations might also prompt Baugur to resume its interest in buying Debenhams, whose shares have dropped 55 per cent this year.

Baugur is barred from bidding for the department store chain until January unless it has the support of the board or someone else makes an offer. The Takeover Panel imposed the six-month restriction in July when it made Baugur clarify its position after suggesting it might buy Debenhams.

Almost a third of consumers in the BRC survey said the economy was their main concern in the coming six months a significant rise from mid-year when 22 per cent cited the economy as a major worry. Consumers were also concerned about inflation, interest rate rises and unemployment in the event of an economic downturn.

The Bank of England cut rates by a quarter point last week to 5.5 per cent after a swathe of bad economic news. Economists now predict rates could fall below 5 per cent by the end of 2008.

Kevin Hawkins, the director general of the BRC, said: "Not only is a severe slowdown in consumer spending likely but retailers' share of that spend is set to fall significantly, ratchetting price competition up still further."

"If interest rates do not fall further and disposable incomes continue to weaken, confidence levels and customers' willingness to spend will continue to decline," he added.

Compared with the same time last year, 50 per cent more people believe that now is a bad time to buy the things they want and need. Consumers said they are less likely to spend on new clothes, DIY and new technology than they were a year ago, with more people now intending to put their spare money into savings, up to 38 per cent from 32 per cent a year ago. Paying off debts has increased to 32 per cent from 30 per cent a year ago, while putting spare money into retirement funds and investments has increased to 13 per cent from 11 per cent.

John Lewis bucks trend

John Lewis has shaken off the prevailing high street blues by recording its biggest ever week for sales a week earlier than the record it set last year. The department store chain said it took market share from rivals as it notched up sales of nearly 96m, up 5.2 per cent on the year and 11.7 per centon the previous week. The slowing housing market gave the company strong growth in sales of furnishings and furniture as people decided to upgrade their existing homes rather than consider moving. Curtains, sofa covers and camp beds were all strong sellers.

Sales of electrical goods such as laptop computers, televisions and Apple iPods also boomed as online sales rose 40 per cent compared with a year earlier. Dan Knowles, director of selling operations, said: "This will be an OK Christmas for the high street and a good Christmas for John Lewis."