Market Report: Consumer downturn takes toll on retail titans

The Swiss broker fearsthe electricals retailer is being hit by falling disposable incomes in the UK and rising fixed costs. It pointed out that consumers in Britain are starting to save more and withdraw less equity from their properties, leaving a smaller amount of cash available for them to spend in the shops. At the same time, DSG is facing rising costs, according to UBS. The combination of the two will inevitably hit earnings at the group, and therefore UBS has been forced to slash its 2005 earnings forecasts for the group.

Meanwhile, hopes of a takeover bid pushed the leisure conglomerate Whitbread up 16p to 976p. In the FTSE 250, MFI Furniture fell 3.75p at 96p as Deutsche Bank and Citigroup downgraded their stance on the retailer to an outright "sell" from a "hold". Citigroup believes MFI will notch up a loss of £95m at its UK retail division this year, and warned that the group's so far resilient Howden joinery business could also suffer a deterioration in trading.

Deutsche expects MFI's retail division to unveil a massive loss this year, and fears things could get far worse as its rival B&Q is expected to start an aggressive campaign of showroom promotions.

The German broker told those investors hoping MFI might attract a takeover bid that such a scenario is "very unlikely" given the losses MFI's core operations are suffering.

Mothercare, off 14.75p at 328p, was also hit by a wave of selling amid concerns of a sharp downturn in trading at the group. Numis Securities agreed with this theory and cut its earnings forecasts for this year and next. The broker said: "At the time of the company's last trading statement in July, like-for-like sales were down 1.8 per cent. Given market conditions since then, we would be surprised if like-for-like sales were not worse than that now." Numis predicts that Mothercare shares will give up much of their recent gains, the bulk of which have been achieved on the back of takeover rumours.

Marks & Spencer bucked the negative trend in the sector, gaining 2p to 382p, as those analysts who attended the launch of the group's new store format in Victoria, central London, came away with the view that the company's turnaround strategy is firmly on track. As many as 100 M&S stores, or 30 per cent of the group's selling space, could boast the new design by Christmas.

At the smaller end of the sector, it emerged that William Currie, once BZW's star retail sector analyst, had taken a 3.1 per cent stake in the online retailer Asos, off 0.5p at 65.5p. Six months ago, Mr Currie took a similar-sized holding in Ideal Shopping, the home-shopping television channel, which has since enjoyed impressive share-price gains.

Meanwhile, profit-taking left the FTSE 100 down 7at 5,494. Dresdner Kleinwort Wasserstein put out research arguing that the merger and acquisition (M&A) fever which has gripped the London market is likely to continue for some time. The broker found that by value, 2005 is already the best year for M&A activity since 2000, and said there were few signs that the City has entered the final stages of this boom.

Among Dresdner's top candidates for takeover in the UK are the bars group Luminar, up 9p to 489p, the building-materials player Hanson, 4.5p stronger at 594p, the engineer IMI, 1.5p better at 434p, and the transport group National Express, up 1.5p at 849p.

Inmarsat dropped 10.75p to 316.5p after the sale of 75 million shares at 317.5p by Apax, Permira and Lockheed Martin. The trio backed the company when it was privately owned and first sold down their shareholdings in the satellite operator at June's 245p-a-share float. There was also a large share sale at BAE Systems, 6p weaker at 338.25p. Brandes Investment Partners disposed of 72 million shares in the defence group at 332p through JP Morgan and Cazenove, which netted the US fund management giant £237m. The stake is believed to have been Brandes' entire holding in the company.

Regal Petroleum rose 4.5p to 117.5p on word the oil explorer's former chairman Frank Timis has been busy adding to his holding in the group. Last week, the controversial entrepreneur disclosed the purchase of 1 million Regal shares, and yesterday he is said to have picked up 3 million. NetStore added 2.5p to 40.5p after the software group unveiled a £12m acquisition while CRC, steady at 275p, was said to be enjoying strong trading at the Italian business it recently bought.