Blood on the High Street

The City is bracing itself for retailers announcements of Christmas trading and they’re not likely to make pretty reading.

The snow and severe weather conditions made a significant dent in sales in the run up to Christmas but although many retailers may have made up sales in the final week it was often at the expense of margins. Nick Hood, from the restructuring firm Begbies Traynor, asks “whatever happened to the old management truth of ‘top line is vanity, bottom line is sanity’ to their discounted sales model. The reality is that everyone, even the big players, will come out of Christmas with reduced profits”

It wont be much better for the on-line retailers either.  2 weeks before Christmas the carriers were refusing to take any further parcels to Scotland and some parts of the North of England as they had such a backlog. They can also expect a significant amount of returns as many parcels shipped in good time still didn’t make it to their destination for Christmas day.

Industry experts expect that like for like sales will be down between 5% and 10%.  However there are some well known retailers who, it is expected, will fare even worse. CD, DVD, book and computer game retailers such as HMV and Game are expected to see an increase in sales erosion to the on-line retailers.  JJB has staved off bankruptcy again with an emergency fund-raising just before Christmas of £31.5m and is expected to have that ‘topped up’ to £50m this month.

Even the supermarkets are not immune as it is feared that, 2009  market winner, Morrisons has suffered a reversal of fortune in 2010.

The danger is that those retailers who struggled in 2010 will be wiped out with the VAT/NI increases and reduced disposable income as redundancies, pay restraint and increased taxes kick in in 2011.

However, on a positive not, those that do survive this year will be well placed to take advantage of less competition,  the availability of cheaper and more flexible retail space, more ‘deals’ from suppliers and little upward pressure on wages.

Tony Heywood – Gilcrest Services Ltd
Retail Troubleshooter
Business Turnaround and Recovery

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