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News - 10 November 2004
A cold Christmas in store

Retailers need to batten down the hatches

Consumer confidence is ebbing away in an uncertain world. Retailers generally need to prepare for a tough Christmas and a tough New Year.

Higher interest rates, the turnaround in the housing market, higher petrol costs and talk of increased taxes to cover the government’s projected spending deficit have combined to sap the confidence of the consumer on a dramatic scale.

BRC/KPMG retail sales monitor figures show that last month was the worst of the year for retailers despite the fact that traditionally October half term signals the start of Christmas. At the same time Experian’s consumer confidence index shows a decline almost across the entire country with only the Midlands showing any signs of optimism. Depressingly for Brighton – consumer confidence is at its lowest in the south-east.

Looking to 2005 disposable household income after essential household expenditure is set to decline for the first time in six years. Utilities including gas, electricity and water bills are all expected to increase significantly. This results in a figure of 28p being available for discretionary spending for every extra £1 earned. This compares unfavourably with 38p last year and 50p in 2002.

Big ticket items like cars, furniture and white goods are likely to suffer the most but all areas of discretionary retail and leisure are likely to suffer a downturn.

The retail consultancy Verdict is the lone voice offering any glimmer of hope for the Christmas trading season with a forecast of nearly 4% growth on 2003. On balance it seems highly unlikely that Christmas in Brighton will buck the overall trend for 2004, which has been a difficult year for retail generally and especially for the independent sector. In addition the price war between Asda and Tesco is likely to increase the market share of the big two supermarket chains. Traders that do not have the cushion of large cash reserves and/or a sympathetic bank manager need to batten down the hatches and concentrate on keeping overheads to a minimum. Any tenants that have a rent review in the next six months need to be aware that there will be no evidence to support a nil increase (“upward only” rent review clauses preclude a decrease in the vast majority of leases) and it is essential that they get professional representation. Uniform Business Rates will rise in April 2005 by 12.5% and all business associations should be thinking about exploring mass appeals against the increases using local property consultants who know the city.

Read related items on:
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