Shops stage a street fight

Some retailers are defying a tough market. Others are heading for trouble, says David Brierley

ALL is not doom and gloom on the high street, but many of Britain's top retailers are struggling. "There is caution - and fierce competition for consumers' disposable income," says Nathan Cockrell of BT.Alex Brown.

While the uncertain economic climate has reined in consumers, they are also becoming selective. Current trading is very mixed. Storehouse, the BhS and Mothercare group, and Marks & Spencer announced lacklustre sales and sharp falls in profits last week. By contrast, Next, Oasis and French Connection reported strong growth.

Nobody is taking anything for granted. Selfridges, the Oxford Street store, reported sales had risen by 12 per cent but warned: "The retail environment continues to be very competitive."

Economic statistics are mixed. After poor surveys from the CBI and the British Retail Consortium, the Office for National Statistics revealed last week that retail sales in April had fallen 0.5 per cent against March due to declining food sales. Non-food sales grew by 3 per cent. But a survey from GfK, the pollsters, showed consumer confidence at an all-time high.

"Essentially, you've got very slow overall sales growth. Clearly, retailers are battling to obtain growth in a slow market and this is sorting the sheep from the goats," says Paul Mortimer-Lee, an economist at Paribas.

There is pressure on prices everywhere and wide variations between individual sectors and retailers. This looks to be the pattern for some time to come.

"Under the Monetary Policy Committee of the Bank of England, this is the nearest thing to a boom you can expect. We are not going to see a return to the 1980s," says Adam Cole, an economist at HSBC.

The CBI says footwear and leather goods retailers, specialist food shops and off-licences are enjoying growth while non-internet booksellers, confectioners and furniture and carpet stores are depressed. The late 1980s boom suggested all UK retailers were of the same high quality. Today, it is clear this is not the case.

"Look at the host of once-great names that have fallen by the wayside, such as Sears, MFI and Laura Ashley. There is a real difference between Storehouse, widely identified as a busted flush, and Dixons or Kingfisher," says a WestLB Panmure Gordon analyst, Philip Dorgan.

Even within the household goods sector, widely viewed as depressed, there are marked variations. Allied Carpets has seen its first-half sales fall. Meanwhile Berisford, the owner of Magnet, is experiencing growth, along with Rosebys, which sells soft furnishings, and SCS Upholstery.

The stock market remains confident that last year's interest rate cuts will feed through into increased spending this autumn. Average earnings are rising significantly faster than retail prices. So shares have been marked up since January, with the market picking winners and losers.

Retailers of durables, such as carpets and electrical goods, and effective fashion retailers, such as Arcadia and Debenhams, have soared. Boots, which is less likely to benefit from an upturn, has lagged.

The mass-market fashion sector has been strongly affected by the debacle at Marks & Spencer. Last year, M&S tried to sell unfashionable goods at high prices. Its vast stocks had to be discounted at Christmas, hitting its leading competitors. A repeat this year would clearly hurt the sector. Peter Salsbury, M&S chief executive, is promising rapid improvements, but few analysts expect to see an immediate return to success.

Storehouse's dire results were unveiled last week with yet another restructuring programme - 390 job losses and the closure of a fifth of the Mothercare chain - combined with investment in enlarging some stores. Keith Edelman, chief executive, blamed a tough and volatile clothing market. He agrees the investment programme and the difficult market will depress this year's performance too, but predicts: "Our restructuring will definitely help. Where we have refurbished stores, we've seen sales move ahead."

As summer gets under way, all clothes retailers are hoping they can avoid heavy discounting. Not everyone is optimistic. Mr Dorgan says: "There is little scope for growth. The UK retail sector is full of poorly managed businesses which serve the customer badly."

Some retailers are fighting back. Both Next and Oasis are recovering from disastrous merchandise decisions last year. Next has returned to its basic offering of classic clothes at reasonable prices, with sales 20 per cent up this year. Debenhams, too, is thriving. "Debenhams has tapped into what people want, allowing them to buy into a life-style at a price they can afford," says Mr Cockrell.

The shares of French Connection have nearly doubled, reflecting the success of its FCUK brand and its striking ad campaign. "We are a design- led business, all about product. We've got the product right reasonably consistently," says Nick Mather, finance director.

Internet retailing has yet to affect the high street. But the stock market has already decided that Dixons and WH Smith are winners with their free internet services. But the economics of successful e-commerce remain sketchy. Some observers fear online sales of electrical goods will inevitably cut sales - and profits - in Dixons stores. The electrical goods market isn't exciting. Prices continue to fall and Dixons needs to see sales of the new digital television sets take off. BSkyB's decision to offer set-top digital boxes free has been a blow, but heavy advertising should create demand for wide-screen TVs.

Estimates of the net's impact on retailing vary. Richard Perks, of the Corporate Intelligence Data consultancy, believes low access speeds will slow take-up of online home shopping significantly. But around 2 per cent of retail sales in North America are already net-based and 14 per cent of British homes now have access to the net. So effective retailers can expand into the UK market without investing in bricks and mortar. Gap is to launch a UK website. Catalogue retailers, such as GUS or the German giant Otto, ought to be able to offer high-quality home delivery. Tesco, Sainsbury's and Asda clearly think the net will have a significant impact. They're creating efficient digital shopping services in metropolitan areas, catering for two-wage families with little or no time for food shopping.

Food retailing remains a sluggish, saturated market where Tesco gains market share at the expense of rivals, notably Sainsbury's. The proposed Asda-Kingfisher merger clearly states that size and scale matter in retailing - as Wal-Mart and Tesco show. Smaller groups, such as the Co-op, struggle to match the buying power of large chains. In this climate, further retail failures look inevitable.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Ashdown Group: Contracts Executive - City of London

£35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...

Recruitment Genius: Call Centre Debt Collector - Multiple Roles

£21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen