John Lewis warns retailers to prepare for the worst

High street set to struggle during second half of 2010, says Charlie Mayfield

Britain's retailers are heading for a dismal second half of the year following the "false dawn" recovery in consumer spending of recent months, the chairman of the John Lewis Partnership, which owns the eponymous department store and the Waitrose supermarket chain, warned yesterday.

Charlie Mayfield said that once the general election was over, consumers were facing a toxic combination of tax rises, public sector spending cuts and potentially higher interest rates. He said: "The second half of the year will be the time when we start to see these things coming in and we start to see tougher trading conditions."

Mr Mayfield's warning is especially significant because John Lewis, which has 29 shops and has recently enjoyed buoyant trading, is seen as a bellwether of the high street. "I think we're in a bit of a false dawn and I do think we are in for a more difficult time," Mr Mayfield added. "There has been the biggest crisis in global financing ever and getting out of it has cost an eye-watering amount of money and we simply haven't started to pay the price for that."

While John Lewis has carried its strong sales momentum from the tail end of last year into 2010, many retailers suffered a dire January, when the trade was hit by the icy weather, and have extended clearance sales into this month. Mr Mayfield did not forecast a repeat of the high-street crisis of late 2008, but said retailers should not expect a return to the heady days of previous growth any time soon.

He said: "The world has changed and wistfully hoping it will go back to where we were 10 years ago is a fool's errand." His warning of a tough second half for the sector will also concern JLP staff, who next week are set to receive an increased bonus for the partnership's financial year to the end of January 2010.

Last year, JLP paid a bonus equal to 13 per cent of basic salary – or nearly seven weeks' pay – to staff at John Lewis and Waitrose out of a pot of £125.5m, after pre-tax profits came in at £279.6m.

But Nick Bubb, an retail analyst at Arden Partners, has forecast that staff will get a bonus of "at least" 14 per cent for the year to January 2010, an uplift of around 8 per cent on last year. Mr Bubb said: "They [JLP] have had a storming second half."

Nevertheless, storm clouds are now gathering across the retail sector. Stewart Binnie, the non-executive president at Aurora Fashions – which owns Karen Millen, Coast, Oasis and Warehouse – yesterday forecast that the next government would hike VAT beyond 17.5 per cent over the next year to pay down the public sector deficit. Mr Binnie warned that fashion retailers were already being hit by hefty unemployment among young people.

He said: "The young market is very difficult. If you look at our fashion brands, there is clearly a difference between the young fashion brands and the others, which are performing very well. But young people in the UK are not shopping. One million of them are unemployed." He added: "We are all waiting with bated breath to see how the spring season proceeds."

Yesterday, Experian offered a ray of hope, reporting that footfall rose by 2.1 per cent last month, compared with February 2009.