Profit warnings in the retail sector

Profit warnings are not unusual at the moment. However, that retailers are issuing them at an increasing rate is a worrying symptom of the sector's health.

Research from Ernst & Young shows that in the first quarter of the year, four times as many retailers issued a profit warning as in the previous quarter. Twelve companies warned, compared to three in the last quarter of last year, including Austin Reed, Boots and interior goods shop Homestyle.

The data indicates that retail is finally catching the cold that other sectors – such as the media, telecoms and finance - have been suffering from for some time.

The consumer is starting to lose confidence. "With all the uncertainty around – the global economic perspective, house prices and the increase in the tax burden – these facts are hurting the retailers who have not got their act together and have no niche position in the market," says Kevin Hewitt, a partner in corporate restructuring at Ernst & Young.

This research comes on top of gloomy news issued last week by the British Retail Consortium. Its shop price index for March showed that prices were flat year on year, while the Confederation of British Industry said that the amount of goods sold fell in March, according to a survey of its members. The CBI said that this is the first significant fall for four years.

The results are variable, as companies like New Look are continuing to do well. However, the ubiquitous high-street boom seems to have come to a halt.

According to Mr Hewitt at Ernst & Young, any company that relies on the consumer's spare cash will face difficulties. "The leisure and hotels sector will continue to issue more than its fair share of warnings in the second quarter," he predicts. "The retailers will also be issuing warnings at the same pace as last quarter."

Retail is in the spotlight for other reasons, particularly the bid battle over Safeway. The supermarket chain is due to issue a trading statement in the near future, and the results are not expected to be good. Tesco is reporting this week, although it is thought to be faring better. But like the high street, results have been patchy. When excluding the effect of high petrol prices, WM Morrison reported a healthy sales rise in the first quarter, while Sainsbury's sales fell.

From the chintzy Laura Ashley to the down-to-earth Kwik Save, it looks like tougher times are ahead for our nation of shopkeepers.