Retailers pin hopes on last-minute Christmas rush

The UK's high-street retailers are banking on a last-minute Christmas spending frenzy this weekend and have already slashed prices to unprecedented levels to tempt customersinto stores.

It is shaping up to be a make-or-break weekend for retailers with all signs pointing to a grim 2008. Many retailers, particularly in the clothing and footwear industries, have already launched a raft of price cuts before the normal post-Christmas sales window to move excess stock. With consumer confidence continuing to deteriorate as a result of the credit crunch and rising petrol and food prices, retailers could be facing the grimmest Christmas for years.

Nonetheless, there will be a frenzy of activity this weekend as shoppers who have run out of time to buy presents on the internet flock to the shops to make last-minute purchases. The Retail Footfall Index has shown that the number of people visiting shops over the past week has fallen 9 per cent compared with last year. However, the British Retail Consortium expects that sales this weekend should drive a 3 per cent rise in like-for-like sales over the Christmas period, with consumers tempted by significant price discounting. During November, total monthly sales edged 0.4 per cent higher, according to the Office for Nat-ional Statistics, about twice as fast as analysts had pencilled in due to the boom in internet sales, which rose nearly 6 per cent.

Paul Clarke, national director, retail & wholesale sectors, at Barclays Commercial Bank, said: "All the indicators are that Dec-ember has not started well for the high street. The recent trend of shoppers delaying their gift buying was exacerbated by the poor weather at the beginning of the month."

A report compiled by Ernst & Young found that discounting in the run-up to Christmas is deeper and more widespread than last year, with the average cut to the full retail price of a product averaging out at 36 per cent prior to this weekend. The spread of discounting is also wider than is normally expected before Christmas, with price cuts ranging from 10 per cent up to a staggering 80 per cent.

Jason Gordon, senior manager for retail at E&Y, said: "Consumers have lost the feelgood factor due to the credit crunch, falling house prices and rising household costs. It's no surprise that some retailers, particularly in the clothing, footwear and entertainment sectors, are having to offer such deep discounts to woo cash-strapped shoppers."

Gavin George, head of retail at E&Y, said that sales growth over Christmas will be muted "but not the disaster that some commentators are predicting" as online and grocery sales help to prop up the overall retail sector. "We're forecasting very low like-for-like growth across the retail sector as a whole, with big variations in performance between the winners and losers," he said.

Being one of the retail winners over Christmas could be crucial to a company's performance in 2008, with consumer confidence hitting its lowest level since 1995, according to a survey compiled by Gfk NOP. Rachael Joy at Gfk said that consumers' perceptions of the climate for making major purchases stood at its lowest level since June 1991. "As 2007 draws to a close, we see that consumers are suffering from a dose of realism," she said.

E&Y's Mr George said: "The early part of next year is set to be even tougher for retail, as cautious consumers rein in their spending even further. Consequently, we are likely to see an increase in retailer profit warnings and even further casualties on the high street."

Prices cut to pull in trade

The post-Christmas sales have started early this year as retailers desperately try to move excess stock and tempt nervous consumers into spending.

Some footwear and clothing retailers have slashed prices by 80 per cent already and big-ticket items like flat-screen TVs have never been cheaper.

A quick wander around Canary Wharf shopping centre yesterday showed a host of retailers has slashed prices, including Karen Millen, French Connection, Gap, Warehouse and Austin Reed. Other retailers, such as HMV and Game Group, have instead launched selected promotions while a few brave souls, such as Topshop, Ted Baker and Next, have held their nerve and maintained prices.

Yet it's not all bad news, with some items notably the Nintendo Wii but also the supposedly anachronistic CD flying off the shelves.