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News - 2 January 2011

Retail crisis

Don’t be fooled by the post Christmas sales: the December trading period was a disaster for most retailers and 2011 will be one of the toughest years on record for the high street.

John Lewis is one of a handful of retailers that had a reasonable Christmas but most expect trade to be between 5% and 10% down on 2009 and many will probably wish that it was only 10% down. 

The coming year will probably see an enormous shakeout for both multiples and independents as the combined effect of a rise in VAT, an increasing number of unemployed, inflation adding to everyday living expenses and stagnant disposable incomes take their toll.

In addition, a widely predicted fall in house prices may well be the straw that broke the camel’s back for households already under pressure. None of this is likely to encourage consumers to go shopping.

Some retailers went into the Christmas period already weakened from poor trading in 2010. Game, JJB and Clinton Cards are all going to be under pressure next year and it seems unlikely that two HMV stores will survive in Brighton city centre [Western Road and Churchill Square] when a lot of the market for DVDs, CDs and books has gone online. Last month the group that owns HMV and Waterstones reported a pre-tax loss of over £43m after a 6% decline in sales.

Similarly JJB Sports only staved off going into administration by raising an emergency £31.5m from shareholders on Christmas Eve and 2011 will be the most perilous year in its history [see earlier stories]. A slew of high street names announce their results in January including Next [5th], Clinton Cards [6th], Debenhams [10th], Marks & Spencer [11th], Dixons, Game, Halfords, Mothercare and Tesco [13th] and WH Smith [26th] and they will be scrutinised closely by analysts.

The smaller independents, the mainstay of Brighton’s retail offer, will be similarly weakened by the loss of business due to bad weather after a generally weak 12 months of trade. For many it will be a case of devising a business plan that simply keeps them alive during 2011 until a pick up improves their fortunes. Being located in Brighton, which continues to attract visitors, is probably their biggest asset but they will be relying heavily on good visitor numbers during the summer.

It is vital that, in the meantime, they revisit cash flow forecasts to examine every overhead in detail and negotiate as much breathing space as they can with every creditor including landlords, HMRC, and suppliers.

On February 1st the Business Forum, in conjunction with the Chamber of Commerce, is running a training session on how to survive a rent review which will also include details of how to negotiate rent reductions with landlords. For details visit the Chamber’s website. The session is free but booking is essential.

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