Not the end of the retail world

The new landscape of Britain’s high streets is becoming all too familiar.

Closing down sales, bill-littered doormats, boarded-up shops and other ugly manifestations of recession are in evidence as well-known chains from Woollies and MFI to other newer and less familiar names like Zavvi (an outgrowth of Virgin), children’s wear firm Adams and Officers Club have gone bust.

Even Marks & Spencer, once regarded as a rock of stability amid the organic mass on the high street, is closing 25 of its specialist Simply Food stores.

To read the headlines, you might think it is all over for shopping as we know it. After all, wasn’t Alistair Darling’s hastily arranged VAT cut of last November — designed to pump £11 billion into the pockets of consumers and businesses — meant to have changed all of this?

The answer is that, despite the scepticism in some quarters, the VAT change has probably helped. The 2.5 per cent point cut to 15 per cent may seem minor league compared to the 40, 50 and even 70 per cent markdowns seen at some outlets on Britain’s high streets. But to deny its importance, as some critics of Labour have, would be economically illiterate.

What the VAT change temporarily does is transfer a slug of income from the government sector to the private sector. Whether this cash goes into lower prices at Fenwicks at North London’s Brent Cross shopping centre, or temporarily improves the profit margin for the small shopkeeper on Brent High Street is irrelevant; it is still adding to income and saving jobs.

What is equally surprising amid the mythology growing up around the supposed disaster on the high street is to think it is in a catastrophic state of collapse. Given the terrible state of the banking system, the relentless bombardment of the media about the credit crunch and the repeated dire predictions of economists and politicians alike, the trauma is minor league. Check the overall data from the British Retail Consortium and one finds that retail sales were down by just 1.4 per cent in December, despite all the gloom. Indeed, if one tracks the weekly data from, for instance, John Lewis (which reports each week) it has been trending up in January. And, if one abandons the favoured metric of the industry analysts — like-for-like or same store sales — and focuses on overall sales, which include new openings and enlarged stores, then one finds that many of the chains which reported lukewarm same store sales actually saw an overall increase in turnover.

So what then is actually happening to the nation’s shopping? The recession is in essence speeding up a process which has already begun. The specialist retailers like DSG (the former Dixons) are having to compete with Tesco, J Sainsbury and the other retail chains. Tesco is even preparing to give the ailing high street banks a run for their money, having bought out the minority stake in the Tesco Personal Finance from Royal Bank of Scotland for £950million.

It was the supermarkets who led the flat screen price war over the Christmas/Chanucah season with even M&S joining in, offering small combined TV/DVDs for under £200. Tesco is seeking to become a dominant force in clothing, cutting the prices on more than 700 lines this week.

Within this new paradigm the specialist survivors are those which offer the extra service. Newsagents who actually deliver papers and magazines to the door, electrical chains like Richer Sounds which offer expert technical advice, boutiques and web sites which provide desirable designer fashion and kosher food stores which recognise there is virtue in being nice to customers.

It would be daft to pretend that the high street is not hurting. But strong sales and profits performances from the supermarkets and record online sales suggest that the retail sector is being shaped as much by changing shopping trends as by the slump.

Alex Brummer is City Editor of the Daily Mail

    Last updated: 5:10pm, January 22 2009