Retailers fret as shoppers fail to appear on the high street

This weekend is likely to see Britons spending. But, as James Thompson finds, it will be a rare opportunity for shopkeepers to shift stock

The Arctic-like conditions across much of the UK were so bad this weekend last year that London's Brent Cross shopping centre had to be closed on the Saturday.

But the weather was forecast to be more favourable for shopping this weekend, which is likely to result in many retailers posting healthy comparable sales – for these two days at least.

Unfortunately, this is likely to be a rare ray of sunshine in what has been a gloomy "golden quarter" – when chains typically make about 40 per cent of their profits – for many retailers. In the face of a brutal consumer slowdown and unseasonably warm weather, many retailers have been forced to discount heavily at the expense of profit margins to entice customers through their doors.

Andrew Murphy, the retail director at John Lewis, says: "For the wider high street, the gap between the winners and losers will be more pronounced than ever this year. The sales numbers will only tell part of the story and more interesting will be what people have had to sacrifice to get to that level of sales."

John Lewis is likely to be among the winners this Christmas, but it is a rare beast. Christine Cross, the chief retail adviser to the accountancy firm PricewaterhouseCoopers, said she expects non-food sales, both in terms of value and volumes, to be lower this Christmas on last year. "Overall, I think retail sales will be down on last year overall, with the exception of flagship shops in London which are going gangbusters at the moment."

A number of non-food retailers are already showing signs of distress. For instance, Barratts Priceless collapsed into administration this month, putting nearly 4,000 jobs at risk, and the lingerie chain La Senza has hired a restructuring team at KPMG in a desperate bid to survive.

But troubled chains can be found across the sector from Blacks Leisure, the outdoor specialist that put itself up for sale on 7 December, to Peacocks, the discount fashion chain that has debts of £240m. Robert Clark, the senior partner at Retail Week Knowledge Bank, says: "I think there will be the usual four or five [administrations] by the end of January and then the next ones around the March rent day."

A further headache this year is that Christmas Day falls on a Sunday. This has intensified the game of chicken retailers always play with consumers about when to go on sale, and means that many shoppers, particularly men, will leave their shopping to the last minute.

Jim McCarthy, the chief executive of Poundland, the single-price retailer, says: "I think that people are not buying yet. It is a little bit slower than it was last year so far. People perhaps feel comforted that they have an extra [Saturday] to shop."

He adds: "UK consumers are resilient, and they will be determined to have a good Christmas. But I think the purchases they make will reflect their needs. They will not be as free with their spending as they were previously." However, Mr McCarthy says Poundland has delivered like-for-like sales growth "throughout the year".

Though the next week is important for most retailers and an 11th-hour stampede of shoppers is likely, the writing is already on the wall for both successful and ailing chains.

Dave Forsey, the chief executive of Sports Direct, which has been doing sparklingly well, says: "You know halfway through December how Christmas is going to be." Despite being up against a tough comparable performance of a football World Cup in 2010, Sports Direct grew its pre-tax profits by 0.3 per cent to £100.3m over the 26 weeks to 23 October, on total sales up 8.4 per cent to £888.6m.

Struggling chains, however, might not find buyers waiting in the wings – as they have in recent years – after calling in administrators. Ms Cross of PwC says: "I think it is going to get tougher for the weaker retailers. In 2008, 2009 and 2010 there were plenty of buyers who were willing and able to take a medium-term view on distressed assets. Today, few investors are willing to take such a risk."

It also appears that the downturn is driving a further wedge between the performance of retailers in London and the South-East, and those in the provinces, particularly in areas hit by public-sector job losses. Ms Cross adds: "Not only does there appear to be a North/South divide but also an East/West divide, with Bristol and its surrounding areas, and Wales finding the going tough. In contrast, trading in the South-East is better."

However, there are plenty of retailers, including the fashion group Next, Kingfisher – which owns the DIY chain B&Q – and luxury players such as Mulberry and Burberry, which continue to grow profits.

Indeed, Mr Murphy at John Lewis says the downbeat view of high street trading has been overdone. He says: "Our sense is that as we have come into December, things have picked up. I think some of the predictions of the most extreme prophets of doom and gloom will be a bit wide of the mark."

Furthermore, after at least three years of austerity Britain, many retailers have made huge strides in trimming their costs, paying down debt, improving products and whipping their online operation into shape.

In fact, the burgeoning growth of online can be clearly seen in John Lewis' latest figures. The group's total sales rose by only 2 per cent to £123.4m in the week 10 December, boosted by three new shops. But this did not include its online sales, which rocketed 20 per cent over the period. Website sales now exceed those at its flagship shop in Oxford Street, London, by more than 80 per cent.

As for next year, much will depend on whether the eurozone sovereign debt crisis deepens and how this affects the UK economy, as well as what happens to unemployment and inflation. Optimism is in short supply, but there are some who point to widespread forecasts that inflation is expected to come down next year, helped by lower cotton prices and the sector passing the anniversary of the rise in VAT to 20 per cent.

Mr Clark says: "I think it has got as bad as it is going to get. January and February will be really tough but after Easter it might get a bit better and then the Diamond Jubilee and Olympics will engender a feelgood factor that should encourage people to spend a bit more."

But Mr McCarthy says: "My own view is that it is probably more likely to be 2014 before people start to feel more confident."

Taking The Long View

UK's senior shopkeepers see cause for optimism

"The next three weeks are important for lots of retailers. That week after Christmas is very important becausethat’s when retailers [start to] clear their stock. Money is tighter at the moment and consumers are being much more selective.”

Brian Brick, Chief executive, Moss Bros

“I think people will have a good Christmas but that will centre on food and drink rather than lots of very expensive presents. People have decided to cut back a bit. Next year is going to be tougher than 2011.”

Jim McCarthy, Chief executive, Poundland

Struggling stores

Shops that may have reason to fear the future

Blacks Leisure: Has debts of £36m and forced to seek buyer after shareholders balked at cash call. Mountain Warehouse and Go Outdoors, among others, could bid for part or all of the business at a knock-down price.

Game: Warned on profits in November and has called in restructuring team at Deloitte. The City expects Game to post a loss of £12m for the year to 31 January.

Peacocks: Plans debt-for-equity swap with Goldman Sachs and mulling closure of up to 200 shops. The group, which has 611 Peacocks and 394 Bon Marche shops, has debts of £240m.

HMV: Shares at 3.9p, debts of £170.7m and latest sales down by 15.1 per cent. In its interim results tomorrow, HMV will say if its focus on selling technology products, such as headphones, has paid off.

La Senza: The lingerie chain, which has 158 UK stores, has hired a restructuring team at KPMG. It employs 2,600 staff and delivered sales of £140m last year but its future could be in jeopardy.