Everything on discount in Britain, even Woolworths at one pound?November 20th, 2008 - 2:13 pm ICT by IANS
London, Nov 20 (IANS) The bell tolls for the British high street retail industry as it launches a desperate discount war for a piece of the shrinking pre-Christmas sales even as one of the biggest retailers is said to be on the brink of selling its 800-store business for a paltry sum of one pound ($1.5).A bleak Wednesday at the stock exchange saw the FTSE 100 slide by 200 points, with shares of most high street retailers plunging anywhere between 10 and 31 percent, prompting panic measures from retailers.
The latest survey by the Post Office said consumers have cut their monthly spending by an average of 160 pounds ($239), totalling 2.7 billion pounds a month. They are still not buying, deferring their pre-Christmas shopping, anticipating further price cuts.
And that’s sounding the death knell for the retailers who have been unable to clear their stocks which, under normal circumstances, would have cleared once every week this time of the year.
Philip Green, owner of the Arcadia group of stores, told The Times: “Every retailer out there is trying to manage their store, their business, according to the market, which is the toughest we’ve ever seen. You can’t rule out doing whatever you have to do to get your business in line.”
The Arcadia group - comprising Dorothy Perkins, Wallis, Evans and Burtons - also announced 20 percent discount, while Debenhams launches a 25 percent three-day sell-off from Thursday. Bhs, which offered 20 percent off everything a week ago, now has up to 50 percent off selected lines.
Marks and Spencers, for the first time in the last four years, has announced a pre-Christmas 20 percent discount from Thursday and all its stores in Britain will remain open till midnight.
Its spokesperson said: “It’s a volatile trading environment. We want to be competing as hard as we can for our share of the spend.”
Among superstores, Morrison has already introduced aggressive promotions on foods, including buy-one-get-two-free offers. Sainsbury’s and Tesco are cutting prices of Christmas gifts and clothes.
Other retailers feeling the squeeze include Sports Direct, owned by the billionaire Mike Ashley, and DSG, formerly known as Dixons. DSG’s shares lost 31 percent of their value Wednesday, closing at just 15 pence. At that level the business has a value of just 275 million pounds - equal to about 10 days’ sales.
Woolworths, Debenhams, Currys, Focus, Poundstretcher, Ideal World and TJ Hughes have also had their credit insurance removed, according to The Guardian. Without cover, retailers have to pay for supplies upfront, in cash, rather than having the time to sell goods to customers before settling suppliers’ bills.
The high street crisis may have a domino effect, analysts say. Retailers employ one of every 10 working Britons and losses may lead to job cuts. Cost of buying goods from foreign manufacturers is rising as a result of a weakening pound. Retailers unable to sell may fall back on paying store rents, denting the pockets of the landlords of thousands of stores across the country.
Woolworths, one of Britain’s earliest superstore sensations, is 99 years old and may not get to a century, instead collapsing into administration. Suffering continually plunging sales, it is now likely to get just one pound for its loss-making 800-store chain which used to return annual sales of three billion pounds.
The decision to seek a buyer for the shops in mid-November reveals that the chain is dangerously close to bankruptcy, say analysts. It makes 90 percent of its profits in the six weeks before Christmas and should be raking in cash at this time of the year, selling Christmas goods and toys.
It is said to be in sale talks with American turnaround specialist, Hilco. Paul McGowan, Hilco’s chief executive in Britain, confirmed to The Independent that his company was in talks with Woolworths over a potential deal, but said that they were in the “very early stages”. Its shares plunged 40 percent Wednesday after the deal leaked to the market.
Such are the vagaries of the market that only a few weeks ago, Woolworths chairman Richard North rejected a takeover bid of 50 million pounds for its stores from a consortium fronted by Malcolm Walker, the founder of the Iceland food chain. Now it’s desperate to sell for one pound.
The prognosis for the high street over Christmas is dire, market commentators have told The Telegraph. The British Retail Consortium argues that consumer confidence has fallen to all-time lows.
A survey by PricewaterhouseCoopers said that one in five shops could be “void” by the time that the economy picks up again. And accountancy firm BDO Stoy Hayward’s estimates that 1,400 retail businesses will go bust this year.
Nick Bubb, a retail analyst at brokerage firm Pali International, told The Times: “All eyes are on what the government may be able to do about it on Monday (at the pre-budget report). The interest rate cut had no effect, even tax cuts might not have any effect on a consumer who is really frightened about unemployment.”