Christmas Day rent demands threaten to bankrupt retailers

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The Independent Online

Shoppers will spend £6bn this weekend in a final burst of Christmas shopping, but the spree will not be enough to save some high street names from going bust.

Insolvency experts expect several leading retailers to fail to pay basic costs over the next two weeks and to collapse at the start of January.

As families are eating their dinner on Christmas Day, landlords will demand three months rent in advance – multi-million pound bills that some well-known chains will not be able to pay.

A slew of well-known retailers have gone bust this year, with the collapse of MFI and Woolworths alone costing 32,000 jobs. Fashion outlets MK One and Ethel Austin, the shoe shop Dolcis, The Works bookshop and the wood furniture specialist New Heights have been placed in administration this year.

Consumer confidence has plummeted to historic lows this year as the global economic tornado has whirled across Britain, crippling banks and threatening mass job losses in sectors as diverse as construction, property, motor manufacture, media and retail.

Marks & Spencer and other leading shops were forced to slash prices last month to combat a slump in the second half of November, with two for one deals and 50 per cent off promotions.

In the past week, the discounting together with the Chancellor's emergency cut in VAT from 17.5 per cent to 15 per cent, have tempted more shoppers back on to the high street.

For some, however, the upturn will not be enough to survive. Landlords will send bailiffs into the shops at the start of January to seize goods on the shelves in payment rather than wait for the banks to seize the companies.

The corporate rescue specialist Begbies Traynor has put 323 UK retailers on a "critical list", suggesting they have a 70 per cent chance or more of failing.

Specialist firms selling big ticket items and DIY and furniture chains are believed to most vulnerable. Richard Dodd, British Retail Consortium head of media and campaigns, said: "There's been a string this year of smaller, less-well known chains that have gone into administration and undoubtedly there will be more of those. I don't think we will see any of the really well-known names following Woolworths to the wall. The rents issue will no doubt be a factor. It's a big cash-flow issue for retailers to have to stump up three months rent in advance."

Theo Paphitis, star of BBC's Dragons' Den show and a retail turnaround expert, warned: "It is massively tough. But in difficult times there are opportunities and good retailers will survive and poor ones will not." He added: "None of us deserve a living. We have to earn a living. And there are some that have never deserved a living."

According to the Office for National Statistics, sales have held up this year despite the downturn, with a year-on-year rise of 2.9 per cent in November.

Retailers, footfall figures and BRC and KPMG's monthly sales monitor however suggest underlying sales have fallen, with the latter down 2.6 per cent in November compared with last year.

DSGi, owners of Curry's and PC World, reported a pre-tax loss of £29m for the half year to mid-October on a 7 per cent fall in sales. Pre-tax profits at Carpetright slumped 67 per cent after sales fell 13 per cent, while sales fell 8 per cent at JJB Sports, 13 per cent at Comet and 47 per cent at Land of Leather, the furniture retailer, albeit for different periods. According to research for The Independent by the Centre for Economic and Business Research, retailers will take £6.1bn this weekend – three times average takings.

"What we have seen in terms of trends is that Christmas kicked off relatively slowly this year and has accelerated in the last couple of weeks fuelled possibly by discounting launched by the retailers," said CEBR economist Jörg Radeke. Andy Clarke, the retail director of Asda, said: "This is going to be the biggest weekend of the year. It is going to be a nail-biting Christmas for a lot of retailers, but we feel we are in a very good place. The discounting at other retailers has probably brought a lot of January sales activity forward into December. January is going to be challenging for everyone, but if will be tougher for the retailers that have done heavy discounting [before Christmas]."

Retailers are braced for a hectic few days, particularly from last-minute male shoppers, who are likely to crowd lingerie and perfume departments.

Economists believe lower interest rates, the VAT cut and high street sales will not be enough to offset sharply higher unemployment, high debt, low wage increases and tighter lending. Looking forward to 2009, Dan Knowles, the director of selling operations at John Lewis, said: "Fasten your seatbelts. No doubt there will be more businesses finding life very tough and I think we will see more closures in January. Those businesses that do not have a strong brand or are not financially sound will struggle."

Julia Reynolds, chief executive of the internet retailer Figleaves, said: "January and February will be a bloodbath, it will be very tough."