Economic turmoil abroad and high interest rates at home have contributed to a slowdown in high street spending and a spreading sense of gloom in the retail sector, reports Anna Minton
The Trafford Centre, the jewel in the crown of the out-of-town sector, opened last week to a fanfare more fitting for an industry in its pomp than one haunted by the spectre of recession.
But with the opening coinciding with the publication of more gloomy figures from the British Retail Consortium (BRC), the question on analysts’ lips was whether the confidence of Trafford represents the last hurrah for the UK retail industry.
The BRC figures reflected a miserable summer for retailers, revealing that the three-month underlying trend had slipped by 0.9%. Meanwhile, like-for-like growth stood at only 1.5% last year compared with 7.6% growth in the year to August 1997.
For Andrew Higginson, BRC economic affairs committee chair, the third successive month of weak growth “illustrates how rough conditions are on the high street”. If the high street is in difficulties, the retail warehouse sector is far worse off, with household goods the worst hit as the housing market tails off. As for out-of-town, the word is that prime sites such as Trafford are still in demand – 259 of Trafford’s 290 units have been let – but secondary sites are stumbling.
As the BRC joins a growing chorus clamouring for a cut in interest rates to boost consumer confidence, the question for the industry is whether it is unnecessarily talking itself into a downward spiral or whether the unmistakable trend is for retail to follow manufacturing into recession.
Apologists for the summer’s poor figures point to mitigating factors such as bad weather, which hit fashion hard and forced massive discounting on retailers. The Asian economic crisis, with the strength of the pound, also hit certain sectors as once-affluent Japanese tourists stayed at home, unable to indulge their passion for Burberry’s and Gucci or tea from Fortnum & Mason – whose profits to July have almost halved.
Nathan Cockrell, retail analyst with BT Alex.Brown, says that the strength of the pound reinforced the move away from retail in favour of value-for money foreign holidays.
“If it’s a toss up between a new kitchen or two weeks on the Algarve, most people will opt for the latter. A lot of people have had their holiday of a lifetime this year and now they’re back home they’ll tighten their belts,” he says.
His comments are backed up by figures from the British Airports Authority showing that flights for the summer were up 9%. There were simply fewer shoppers in the country.
As if this wasn’t enough, the slowdown reflected in figures for last year is skewed by last summer’s windfall payments, which suddenly gave consumers unexpectedly large amounts to spend.
If the summer downturn was affected more than usual by such short-term factors, this month should benefit from the comparison with a terrible September last year, when the high streets reeled from the “Diana effect” on grieving consumers.
However, Management Horizons consultant George Wallace believes that long-term structural causes are at least as much to blame as these other factors. “All the factors – both immediate and long-term – are pointing in a negative direction. It’s more structural, but the downturn in the economy is the last straw.
“People are, on the whole, better off than they were 10 years ago but there’s a shift away from spending on what constitutes retail sales. The growth is in spending on eating out, education and cars, not what we’d call retail,” he explains.
Although trends are clearly down, the picture is far from black and white, with some sectors bearing up better than others. SGST retail analyst Nick Bubb judges performance on the high street as “volatile and patchy”, with the big guns, such as M&S, C&A and Bhs, having problems while Oasis, New Look and Alexon are faring better.
“The chain stores are under a bit of market share pressure. It seems as though the smaller, nimbler players can move more quickly,” he says.
Bubb feels that September will determine the shape of things to come across the industry. “August was disappointing. Joe Public has seen the headlines and got a bit depressed about job losses and global meltdown. We’re not prepared to say we’ll definitely get a hard landing but this will be the key month – September is always the month that sets the tone,” he says.
The poor state of the retail warehouse sector presents a more straightforward picture, particularly in furniture, carpets and kitchens, and is reflected by a letting market that has failed to meet the much-touted predictions that the tightening of planning legislation would mean that sites were at a premium.
Harvey Spack Field’s Stephen Yarnold, joint agent for retailer Carpetright, says that, instead, retail park schemes are having difficulty in finding tenants. “The letting market is the most difficult it’s been for six years – anything that doesn’t meet prime quality won’t shift. Everyone was forecasting a tight market because of planning. But we’ve actually found that, the minute that started to bite, tenant demand disappeared at the same time as supply – it’s a double whammy.”
CB Hillier Parker’s head of investment Greg Nicholson, believes the message from the shopping centres is similar. “The central message is that secondary stock in most sectors is under threat,” he says.
The British Council of Shopping Centres agrees with this sentiment. “The feedback from our members is of a flight to quality, which suggests that less attractive centres are not growing as quickly,” says BCSC’s head, Philip Lewis.
Something to celebrate
That leaves prime sites such as Trafford in good shape for the time being, which should give the new tenants something to celebrate. But, as analysts and retailers agree, it’s hard to see anything less than cuts in interest rates renewing the confidence the industry so badly needs.
Henry Blythe, retail analyst with Gilbert, Elliott & Co, sums up the prevailing mood: “There’s no sign it’s going to get better unless interest rates fall,” he says, a sentiment echoed throughout the industry.
Profit Warnings from High Street Retailers in 1998
|
January/February |
Tie Rack, DFS, La Senza, Mulberry, MFI, The Body Shop, Liberty, Carpetright, Safeway |
|
March |
Next |
|
May |
Blakes, Oliver Group, DFS (second warning), Allied Carpets |
|
June |
Bentalls, Hamleys |
|
July/August |
Tie Rack (second warning), Stylo |
|
September |
Allders, Victory Corporation |
