Retailers face tougher times as credit crisis bites deeper

Apr 23 2008 by Alistair Houghton, Liverpool Daily Post

More companies flounder as others struggle to keep their heads above water in the stormy financial climate. Alex Turner reports

IT HAS been a tough few months on the high street. Established clothing and shoe retailers have been going into administration at the rate of one a week. Others are reporting difficulties with the tough climate.

Last week, Liverpool-based Ethel Austin bowed after weeks of specula-tion about its trading position.

It closed 33 stores and announced 181 redundancies at its Knowsley head office with around 300 shop staff also expected to lose their jobs. The future of the remaining 270 stores and 2,800 employees remain in the balance.

And over last weekend National Schoolwear Centres, a franchise operation with 58 stores across the country, became the latest to an-nounce administrators had been called in, adding to the list.

It has joined Select Retail, Dolcis, Stead and Simpson, Elvi, Base Mens-wear and Richleys Stewarts who called in administrators this year.

The largest of those, the fashion and jewellery value chain Select Retail, had 250 stores, of which only half were saved in a management buyout in February.

And while some of the others have been partially saved, they are much smaller operations.

In addition, two international retailers are pulling out of the UK. US-owned chain Mexx has announced it is to shut its 61 UK stores and Morgan has plans to close its 40 UK stores.

Sportswear retailer JJB Sports said it was to close 72 of its shops, with the loss of 800 jobs, after profits dropped more than 28% last year.

The action is being taken by new chief executive Chris Ronnie, who took executive control after founder David Whelan sold his family’s holding to a joint venture formed by Icelandic group Exista.

While the measures taken by the sportswear retailer are a consolidation rather than a retreat, another Icelandic investment group, Baugur, is looking to extricate itself from a struggling high street retailer.

It has put MK 1 up for sale less than four years after purchasing it for £55m from retail entrepreneurs Elaine McPherson, David Thompson and Philip Green.

Ironically, it is Ms McPherson who now owns Ethel Austin, after purchasing the company just before placing it into administration. Weekend reports also linked her to a bid for MK 1.

Maureen Hinton, lead analyst with Verdict Research, believes that the pressure is greatest for the likes of Ethel Austin operating at the value end of the market.

“It’s so tough at the moment,” she said. “Any retailers that have weak propositions are going to be in danger. The retailers that have found it most difficult are the price-led retailers. Over the last few years, costs have been rising for all retailers so they have to generate high volumes.

“The larger retailers like Primark, Tesco and Asda can generate those volumes, but Ethel Austin, Select Retail and MK 1 can’t compete.

“They tend to be in secondary locations where you don’t get the footfall.

“This year consumers have been much more selective in their spending so any sort of weakness shows up.”

That reluctance to spend was made clear in March’s sales figures. The British Retail Consortium described the month’s clothing and footwear sales as “the worst for at least eight years”, while across all sectors the fall in sales – of 1.6% on March, 2007 – was the worst for nearly two years.

Helen Dickinson, head of retail at KPMG, said: “Retailers were hit by the double whammy of an early Easter and poor weather even before factoring in the slowdown in consumer spending on the back of rising inflation, falling house prices and the impact on consumer confidence of the credit crisis.”

WHILE consumer confidence remains on a knife-edge, the high street is getting buffeted by increased competition from online retailers, from the continued strengthening of supermarkets’ clothing offering, and from increased costs and narrowing margins.

Verdict’s Ms Hinton added: “Primark has put a lot of pressure on the value and middle markets, but its customer base tends to be younger, so it’s pulling customers from the fashion retailers.

“The influence of the value market has been across the market. As demand is weakening we have lost a few big box retailers like C&A, Littlewoods and Allders.

“The more traditional chains are being replaced by more nimble offers.”

It is Primark that has provided some retail cheer this week after releasing its interim results yesterday.

In the six months to March 1, Primark’s revenues increased 25% to £899m as the chain claimed 10% of the market by volume – making it the UK’s second largest clothing retailer.

It has opened a steady stream of new stores in the UK, Ireland and Spain, giving it 173 shops and 5m sq ft of selling space.

Its success may please analysts and reassure them about the health of the sector, but Primark’s continued momentum is unlikely to benefit smaller players at the value-end of the market who will continue to feel the pressure for some time.

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