Who's top of the high street?

Britain's retailers are heading into the holiday season in a remarkably chipper state. They have had a surprisingly strong year.

In the food sector, Tesco remains steady, Sainsbury's continues to gain ground and Waitrose is challenging Marks & Spencer in the "quality market".

So far, the pre-Christmas sale signs have yet to appear, although many of the supermarket chains, including Morrisons and Asda, are seeking to attract shoppers by offering early discounts on champagne, wines and spirits.

The picture in the clothing sector also looks good. Arcadia, owned by the billionaire government adviser Sir Philip Green, had another strong year.

The battle on the high street comes down to price

Sir Philip, the ebullient businessman, is continuing his overseas drive. There are plans for more of his Topshop outlets in China plus another one in New York. But he tells me that his main challenge is changing the store portfolio.

Over the next couple of years around 500 of the smaller Topshop stores come to the end of their leases. Slowly but surely he has been migrating some of these into franchise outlets.

Marks & Spencer, perhaps the nation's favourite store, is also going through a transition.

Sir Stuart Rose, who has led the company since the unsuccessful bid from Sir Philip in 2004, steps down at the end of the year and new chief executive Marc Bolland is already making his mark. His strategy is to step up the investment programme in new British stores plus to place a greater emphasis on Asia, India and China.

At the end of the year, Bolland will be joined at the helm by investment banker Robert Swannell, who spent 30 years at Schroders where he advised M&S on its defence when Sir Philip made his assault. The problem for Bolland and Swannell is that M&S is a decade behind in its international expansion. Tesco, unbelievably, is already close to its target of generating 50 per cent of its earnings from overseas.

And Burberry, which was until a decade ago, buried deep within Great Universal Stores, has transformed itself into a global leader in luxury goods and remarkably, continues to manufacture the majority of its products in Britain.

The battle on the high street comes down to price. One of the reasons that Sir Philip severed his three collections a year with Kate Moss is because it is costly to produce three seasons of high fashion for a relatively small market.

The remarkable success of Primark is entirely due to selling fashion at a low price. The chain is preparing to open its second Oxford Street store, at the Tottenham Court Road end. However, not everyone is so confident about the future. Lord Wolfson, chief executive of Next, has been somewhat downbeat about next year.

This is partly because of a surge in cotton prices, which will inevitably have to be passed on to the consumer. Meanwhile, veteran retail analyst Philip Dorgan of Atrium Securities has noted there is much to be concerned about in 2011. Topping the list is the rise in Value Added Tax from 17.5 per cent to 20 per cent, scheduled for January. Only the largest of retailers will be able to absorb it.

There will also be the negative impact of the government's spending cuts, the prospect of rising unemployment, an end to easy credit and the surging cost of raw materials, which is already pushing up the consumer prices index.

Yet despite all of this, there does appear a lot to be positive about. With the exception of Woolworths, which went into administration at the end of 2008, most of our larger retailers have coped well in the recession.

They have emerged stronger and with less debt on their books. They have showed a degree of innovation and market ingenuity. And with many now looking to the fast-expanding markets of China and Asia as a way of boosting sales and profits, this should help to support earnings at a time when growth in the UK and Europe is likely to be below trend as a result of budget difficulties and the turmoil in the euro-zone.

It seems that the future for high-street shopping may not be so bleak after all.

Alex Brummer is City Editor of the Daily Mail

Last updated: 3:07pm, December 9 2010