Poor sales 'to put more UK firms out of business'

More retailers in Britain will be driven to the wall in 2005 as the high street endures the slowest growth for more than 40 years, a study showed today.

So far this year, Verdict Research said retailers with sales worth £1.7bn (€2.5bn) have gone into administration, were shut down or put up for sale.

And it warned that more could follow as higher interest rates, a stagnating property market and rising debts restrict retail sales growth to just 2.2% this year.

Casualties of the spending crisis have included department stores group Allders and fashion retailer Pilot Clothing, while discount chain Eisenegger was rescued from administration by a deal involving its management team.

Verdict said: “With consumer demand weaker and a host of cost increases eating into margins, a shake-out of weaker high street fascias is inevitable.”

According to Verdict, 830 stores were closed or put up for sale between January and May, accounting for 1.4% of high street sales and 2.2% of trading space.

The housing boom shielded the high street from the “full force of changes in shopping habits unleashed by the growth of out-of-town and online retailing”, it said.

But this was now over and problems were stacking up for retailers in the form of higher rents – up 4.6% over the past 12 months – and an increase in the minimum wage to £5.05 (€7.50) in October.

“To ensure their survival, mainstream high street retailers are having to re-engineer their businesses to adapt to the demands of price-led consumers,” the report stated.

Backing up the conclusions of a separate report on womenswear released by Verdict last week, it found that middle-market chains have been hardest hit.

The core customer of retailers such as Marks & Spencer and Next is the homeowning middle classes who have less money to spend as house prices stall or even decline.

Verdict cited evidence that there were 45% fewer houses sold in the first quarter of 2005 than a year earlier, while there has also been a slump in mortgage equity withdrawal.

Price cutting on the high street has been “unprecedented” with an average purchase now 4.4% cheaper than four years ago.

However, Verdict said higher cost structures meant high street retailers “cannot match the more rapid price deflation at their out-of-town and online counterparts, whose prices have dropped by 9.5% over the same period”.

The authors of the report warned that the squeeze on sales and pressure from rising costs would not abate in the short term, especially as new business rates were introduced in April.

But some respite will be offered by a lack of new space to open over the next two years.

Verdict said that major shopping complexes to open in cities such as Liverpool, Leeds and Birmingham between 2007 and 2010 will start trading at a time of improved economic conditions.

“Consumer spending will have recovered from tax rises which Verdict expects to be imposed in 2006,” the report stated.

“Verdict also expects interest rates to have fallen and the housing market to have stabilised and returned to modest growth.”