Blackfriar: Hard times for the high street and the outlook is bleak

It’s been a dismal fortnight for the UK’s second-tier retailers.

While the leading supermarkets can do no wrong – whatever happens to the economy people need to eat – we have seen a raft of well-known names, such as furniture chain Habitat, and less well-known ones, including fashion retailer Jane Norman and discount department store chain TJ Hughes, either go into administration or apply to appoint administrators.

As shoppers freeze spending on non-essential purchases, retailers are feeling the squeeze.

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Carpetright’s chairman and chief executive Philip Harris said these are the worst conditions he has seen on the high street for over 50 years.

All sorts of reasons have been blamed – consumers grappling with rising prices, subdued wage growth, a stagnant housing market, further Government cutbacks and fears of interest rate rises.

In austere times we simply make do with what we’ve got. Blackfriar overheard a conversation between two shoppers saying they hadn’t bought a new piece of clothing in months, but had discovered all sorts of treasures hidden in their wardrobes.

Add to this the fact we still have to buy groceries and this is where the dominance of the supermarket players comes into force. The goods shoppers used to buy on the high street – clothes, CDs, DVDs, homewares – can be bought more cheaply in the weekly shop.

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Then of course there’s the internet. Anyone who has paid discount prices at Amazon during the comfort of their lunch hour is hardly going to pop down to HMV during their lunch break.

The latest consumer survey by R3, the trade body for Insolvency Professionals, found that over 80 per cent of consumers have changed the way they shop over the last year. Over half of consumers are buying fewer non-essentials, with a quarter buying items in the sale rather than paying full price.

Andrew Walker, chair of R3 in Yorkshire and partner at Irwin Mitchell, said that the most significant change is consumers shifting to the internet. Close to a third are shopping online more and this has hit retailers with a heavy high-street presence.

“These businesses have to pay rent regardless of whether they are seeing less money going through their tills,” said Mr Walker. “For struggling retailers the demand for rent for the quarter has made them assess their profitability and sadly some have realised that they are unable to continue as they are.”

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So are we through the worst and is the high street on the mend? The bleak news is that of all the commentators Blackfriar has spoken to, not one believes things are going to get better any time soon.

Leading supermarket groups Asda and Sainsbury’s are painting a bleak picture.

Judith McKenna, chief financial officer at Leeds-based Asda, said consumers are in recession. “Do I expect it to improve any time soon? No, I do not,” she said.

Her views were echoed by Sainsbury’s finance director John Rogers.

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“There is a huge, huge amount of pressure on consumers, and has been certainly for the last six months and certainly will be for the next six months,” he said. “It is very difficult to see light at the end of the tunnel at the moment.”

Mark Firmin, head of restructuring at KPMG in the North, believes that conditions on the high street are likely to get worse as we move through 2011.

“Retail administration appointments jumped by a staggering 55 per cent in the first quarter, with retail company voluntary arrangements increasing by 30 per cent,” he said.

“Unfortunately, the fundamental economic indicators suggest that retail insolvency figures will continue to worsen this year.”

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He believes it is now a question of survival of the fittest.

“Companies with healthy cash flow, low debt levels and sustained customer demand will survive, but retailers facing a cash squeeze, large debt burdens, faltering sales and – particularly those with expensive and large store portfolios – will face a very tough time indeed.”

Insolvency practitioner RSM Tenon believes that more than one in eight retailers are in imminent danger of collapse while Richard Hyman, retail adviser at Deloitte, agrees it can only get worse before it gets better.

“Consumer spending is going to get much tighter because Government spending cuts haven’t really started to kick in yet,” he said.

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Perhaps the only way out for the second tier retailers is to cut costs and close underperforming stores – a route being taken by Thorntons, Carpetright and Mothercare.

It’s not good news for UK high streets, where already 14 per cent of town centre shops are empty, according to the Local Data Company. But it’s a better solution for retailers to discard their loss-making stores than risk losing some much-loved high street names for good.