Retail: Merger mania won't go away

The year ahead: What 1999 is going to mean for six crucial stock market sectors

IF LAST YEAR was the annus horribilis for the retail sector then 1999 doesn't look much better. The combination of the stock market gyrations of last summer and the threat of recession has weakened consumer confidence to such an extent that even though personal wealth is much more healthy that at the start of the last downturn, shoppers are spending cautiously.

The immediate outlook is therefore grim, particularly for retailers of more expensive, deferable purchases such as furniture and carpets. The January sales are likely to be a bonanza for shoppers with an unprecedented amount of unsold stock that will need to be discounted to make way for new ranges.

But with interest rates tipped to fall sharply, the cloud over the high street could begin to lift as the year draws on, although consumers are expected to retain their value-conscious approach.

Some sectors will continue to thrive such as mobile phones and PCs but others, such as kitchens, will continue to struggle. Any retailer which begins to look like it is not offering the best value will be penalised.

How Marks & Spencers responds to its problems will be crucial for the rest of the clothing sector. A new, aggressive approach could make life tough for rivals.

All this will be exacerbated by supply-side problems with more mega-malls due to open this year. The massive Bluewater Park in Kent leads the way with its March opening adding more space to an already over-shopped market.

In supermarkets the going will continue to be tough with sales growth expected to be minimal. But expect a series of price promotions as supermarkets battle for shoppers and attempt to head off the Office of Fair Trading investigation into excessive profits.

On the plus side, if the economy does start to improve, the release of pent up consumer demand is likely to have a significant impact.