In fact, over the past year (to November), according to business research company Experian, 1,087 non-food retailers have collapsed, a 17% increase on the previous year.  With little relief in sight and the prospect of a dearth of shoppers after the first few days of the Sales, that trend is likely to accelerate in the coming months.

The Chancellor's initial attempts to kick-start the economy provoked more anger than support amongst retailers.  They believed the measures had not gone far enough, with key demands going unheeded - no pressure on banks to release funding, no concessions on the planned hike in business rates, and no short-term reduction in NI.  To most, the 2.5% cut in VAT appeared to be window-dressing, a short term gimmick, especially at a time when leading retailers were offering genuine reductions of 20% or more.  At a practical level, it was unhelpfully timed, administratively expensive, a complex issue to manage at short notice, and unlikely to improve consumer confidence or significantly stimulate demand. 

Basement value

The ‘credit crunch' has inevitably destroyed the value of retail businesses. 

Three years ago, for instance, private equity firm Apax Partners was prepared to pay £800 million for Woolworths.  Then there was a mad rush to buy up what were termed undervalued retail assets.  Now private equity firms are forced to write off huge sums as its acquisitive business model is shot to pieces.  They'll be back, of course, picking up corporate bargains, as the banks pull plugs across the retail sector in the coming months.

The value of publicly quoted retailers has dived dramatically to previously unseen levels.  DSGi's shares are, as I write in the first week of December, down as low as 10p, nearly 90% down on a year ago; that values the company little more than one week's turnover.  Kesa, Comet's parent company, is down by two-thirds, Home Retail (owners of Argos) by nearly a half, and the digital photographic specialist Jessops' shares languish at less than 2p.  Despite ongoing trading difficulties it managed in September to secure new financing from HSBC; since then it reportedly is considering a link up with a specific manufacturer rather than stocking a range of brands.

The two electrical casualties ran out of time before being able to arrange such refinancing.  In recent months Bridisco, which was established in 1961 and operated through a national network of thirty distribution centres, had been experiencing trading difficulties and liquidity constraints.  That and most importantly the withdrawal of credit insurance resulted in the company being unable to continue trading.

247 Electrical was similarly affected, and could not secure alternative supply and credit facilities.  A week earlier, its managing director had warned that average spending on his site was down by a half compared with a year ago, from £323 to £153.   

Losses mount

All the multiples have reported declining sales and reduced profits in the past year.  DSGI's UK businesses slipped into an underlying pre-tax loss of £11 million for the six months to mid-October, against a profit last time of £29 million.  Like-for-like sales fell by 7% in Currys and by 11% in PC World.  The group has not been helped by reductions in credit insurance, though it insists it ‘is compliant with the financial covenants of its banking facilities at the half year, with £300 million undrawn and available at that date'.

Comet too expected to report a loss in its first half to the end of October; first quarter like-for-like sales were down by 10%.  Half-year sales (to August) at Argos were down by 3% with operating profit 14% lower.  

Richer Sounds posted a near-forty per cent decline in pre-tax profits (to £3.7 million) for the year to April with margins under pressure as customers looked for deals. 

John Lewis too reported reduced half-year profits to July (down twenty-seven per cent before tax), and since then sales have been in negative territory.  Despite opening three new stores in the past year, its overall sales are down by 4.6% in the eighteen weeks to November 29, with electricals and home technology down by 3.8% (and by nearly 15% in November itself).

John Lewis Direct is also suffering.  For the first time since the website was set up in 2001, total year-on-year sales are decreasing; in the last three weeks of November sales were 6% down, as trade in homewares and electricals has gone into reverse. 

The troubles afflicting UK electrical retailers are being felt just as intensely in the USA.  One-timer high-flier Circuit City has sought Chapter 11 bankruptcy protection, and even the mighty Best Buy, soon to expand into the UK and mainland Europe (as a result of its joint venture with Carphone Warehouse), was forced to issue a profit warning after ‘rapid, seismic changes in consumer behaviour' created the worst trading climate the retailer has ever experienced in its 42-year history.  Where that leaves its UK launch we must wait to see, though the company believes plans will not be derailed and four or five UK stores will open in 2009.

Retaining customers

The rental market remains low profile, though still lucrative for those with loyal customer bases, and likely to become more so during this period of financial uncertainty.  The largest operator Boxclever is clearly now well into the cash generation phase, with its focus on customer retention rather than winning new customers.  It now only offers brand new products to existing customers who have been renting for more than twelve months.

Forbes Direct continues to prosper, with income and profit up.  Over the past year it has reduced termination rates in its traditional base and continued to acquire accounts from independents, picking up ‘dozens of small bases'.  Some contracts have been purchased outright, others were part of a winding down process with Forbes upgrading customers' equipment and paying dealer commission.  As ever, some dealers left it too late, leaving the task of disposal to an administrator or liquidator rather than making a speedier decision to sell accounts when still solvent.  Forbes' latest venture is the rental of mobility scooters.

BrightHouse, the rent-to-buy electricals and furniture retailer, has also prospered in the ‘credit crunch', with operating profit up by 15%  to nearly £10 million in the six months to September.  Like-for-like sales rose by thirteen per cent, but vitally it still managed to control bad debt, which reduced to six per cent, despite the lack of credit checking.  It now has 140,000 customers, with ambitious plans to triple the base within five years. 

Switching over

Looking forward, the short-term picture is clearly bleak.  Consumer confidence is shot to pieces.   Unemployment levels will rocket, and those in employment will be concerned about tax hikes already announced, and what more there is to come.  Until banks start lending again, and some activity is restored to the housing market, retailing prospects are grim.  The reduction in the value of sterling will have an impact on product prices, or maybe just margins, as increases are unlikely to hold in such a difficult trading climate. 

There will of course be opportunities, but customers with cash to spend will be seeking even more value for their pound.  Demand for technical service will grow as customers look to repair rather than replace, and the TV market will benefit from the digital switchover.  That circus this year moves on to the West Country, North-West of England and Wales.  Local dealers' investment in free advice and support should result in welcome extra business.  But for most, it's time to batten down those hatches and ride this storm out.

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