Leading article: A retail sector in need of therapy

Thursday 08 January 2009 01:00

At a time of rising unemployment and widespread economic misery, it feels perverse to be poring over the performance of our large retailers in the Christmas shopping frenzy. But we need to pay attention to these sales figures because, like it or not, our national economic health relies heavily on retail spending, and Christmas is the biggest annual selling period. The behaviour of consumers at this time of year is a good guide to what is to come for the wider economy.

So what do the figures show? The first indications are that last month's sales volumes are not as bad as some in the markets expected. The demise of Woolworths, Zavvi and several other smaller retailers in December had prompted several analysts to predict a catastrophic decline in sales over the festive period. In fact, large retailers such as Debenhams and Next, although down, showed some resilience. And New Look and the Co-Op actually registered an increase on last year's sales.

But this is not the whole story. Margins across the sector are being squeezed as shops cut prices to attract customers. Profits in 2009 are likely to be lower than in previous years. And there was some depressing news yesterday from one of the biggest retailing beasts. M&S reported Christmas sales down 3.4 per cent on 2007. This is by no means as bad as some predicted, but M&S's executive chairman, Sir Stuart Rose, has decided that he must make cuts in response. He announced yesterday that 1,230 M&S staff will lose their jobs and 25 smaller food outlets will close.

There is more pain awaiting the retail sector. Some retailers in the South have benefited from the falling value of the pound against the euro as shoppers from the continent have been lured across the Channel to pick up bargains. But more will feel the negative effects of sterling's depreciation as the cost of importing stock from overseas suppliers goes up.

There is not a huge amount the Government can do to help the sector directly. The Treasury's recent cut in value added tax was intended to boost consumer confidence, but appears to have been swamped by retailers' other discounts. Ministers will evidently have to seek other ways to restore Britain, and its dominant retail sector, to the rude economic health of recent years.

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