United Kingdom
Could a cheery festive season lead to a New Year hangover for the high street? - Don Williams
As the busy Christmas and New Year period draws to a conclusion, retailers are now increasingly looking forward to the rest of the year. The key question on the minds of most is can the recovery really continue given the fiscal headwinds that surely lie ahead.
On the one hand, a quick glance at recent trading updates from the largest retailers suggests that demand is remarkably strong.
John Lewis has reported double-digit increases in weekly sales throughout the festive period, while Christmas trading statements from other leading retailers have also been positive. Our own survey across mid-market high street chains, High Street Sales Tracker, indicates sales grew by 4.2 per cent on a like-for-like basis during the key five week period up to 3 Jan 2010.
However, we have also had some dire warnings from insolvency professionals about a bloodbath on the high street after Christmas with two-dozen high street chains at risk.
So who’s right? On the face of it, 2010 should see a continuation of the recovery in retail spending witnessed during 2009, as the economy comes out of recession. However, the retail sector rarely performs entirely inline with the trajectory of the wider economic cycles. A host of other less predictable events also play a major part.
In 2010, the big unknown factor is how consumers will respond to the VAT reversal, as well as further likely tax increases. The perception of rising prices could significantly damage consumer sentiment. In Germany, when a similar VAT rise was widely publicised and implemented in 2006, retail sales plunged by nearly 10 per cent.
Although I don’t want to overplay this as an issue, there is no doubt in my mind that consumer spending will come under renewed pressure in 2010. This is likely to be especially marked during the second of half of the year as tax rises bites, public sector job cuts become a reality, and interest rates edge up.
My fear is that we have had 2010’s gains in 2009, and as a result growth this year will be a lacklustre affair.
Unfortunately, this means retailers operating in sectors which depend on big ticket discretionary purchases will again come under renewed pressure. Fashion retailers could also suffer, as will smaller independent stores.
More positively, I think the supermarkets will continue to do well, while online retail still has significant growth potential. Retailers with leading positions - be that in niche or mainstream categories - that can support their brands through targeted promotions are also likely to do well.
We are probably over the worst but don’t expect a retail bonanza in 2010.
For more details please view our 2010 Retail Forecasts.