Blackfriar: Fears of a return to the darkest days on the high street

The news has got progressively worse as the weeks have passed, raising the spectre of another crop of retailers going to the wall.

Yesterday Dixons issued a bleak profits warning, DFS said recent sales growth has more than halved and the Co-Operative said there is “absolutely no growth” in the grocery market at the moment.

The Co-op, which is the fifth biggest grocer in the UK, said promotions now account for 50 per cent of sales – a new record – as shoppers try to find ways to make their cash go further.

The Co-op can afford to tell things as they really are as it doesn’t have to account to shareholders. While other listed retailers have put a cheery spin on their profit warnings, the Co-op wasn’t pulling any punches yesterday.

Bradford-born chief executive Peter Marks said that in his 40 years in the retail sector he has never seen anything like the current climate.

“I’ve never seen promotions at 50 per cent, it’s unheard of territory. It really describes the market place. We are normally 40 per cent promotions. The 50 per cent figure tells you a big story about how customers are behaving,” he said.

He added people are looking for value and ways to maximise the amount they can spend on groceries in a very competitive environment.

“Consumers have a budget they are used to spending on food and are thinking: ‘That’s the amount I’m prepared to spend’. It’s going to be tough for the next two years.”

The Co-op warned that it doesn’t expect a recovery in consumer spending until next year.

Leeds-based Asda’s latest income tracker claims that family spending power fell by £11 a week in February 2011, the largest fall on record and the third record-breaking month in a row.

The average family had £169 per week to spend in February, 6.2 per cent down from £180 this time last year, according to the influential monthly report.

Rising global commodity prices have continued to soar in recent months, while ongoing disruption to oil supplies in the Middle East continued to put pressure on petrol costs.

As a result, transport costs continued to be the largest contributor to the headline rate of inflation.

Asda’s chief executive Andy Clarke said: “Asda Mums tell us it’s never been tougher out there as they juggle the competing pressures on their finances.”

Retail is vital to the wealth of the UK economy and if this trend progresses there are real fears that the fragile economic recovery could be derailed.

n It started off as a routine information request, but few could foresee the damage it would cause.

The Financial Services Authority asked York-based credit card and identity protection firm CPP Group for recordings of its sales calls earlier this year.

The resultant meeting with the FSA on March 18 was the start of a nightmare journey for the group, which floated on the stock market a year ago.

The FSA claimed to have serious concerns over the way CPP sells its ID protection product, which offers assistance and covers out-of-pocket expenses if your identity is stolen.

News of the FSA’s probe sent CPP’s shares into freefall on Tuesday, wiping out more than half of the company’s value.

“They have some questions and concerns about the way they think we have been selling the (ID) product,” said finance director Shaun Parker, adding that the regulator thinks customers are confused about what the product’s insurance element actually covers.

However, Mr Parker insisted that out of its 6,000 ID theft claims last year, “only one or two” were confused about the cover.

The FSA is also concerned that sales calls appeared to exaggerate the threat posed by ID fraud. CPP is adamant the regulator is wrong.

Asked bluntly if CPP has misled consumers, Mr Parker replied equally bluntly: “no”.

But consumer group Which? welcomed the probe on Tuesday.

“ID theft insurance is a product that most people will never use yet hundreds of thousands of policies have been sold, which raises serious questions about the sales practices being employed,” said Which? chief executive Peter Vicary-Smith.

The market hates uncertainty. The words “discussions with the FSA” set warning lights flashing for investors. Standard Life promptly sold 6.5 million shares in the group, cutting its holding by two thirds.

The risk is that the FSA probe widens to include its card protection products, and this could prompt CPP’s customers to think twice about using the group. CPP’s shares recovered 11 per cent yesterday on hopes the sell-off may have been overdone.

But it needs this cloud of regulatory doubt to clear before it can move on.