Retailers face sales 'disaster' on high street

Published on Saturday 18 October 2008 15:01

DEBENHAMS is tipped to unveil a £21m drop in annual profits this week as analysts warn the high street is "staring disaster in the face" in the run-up to Christmas.

Although Debenhams is thought to have performed "credibly" under the recent economic circumstances, panic is already setting in about the festive period, when some analysts warn the high street will be confronted by the worst trading conditions for 30 years.

Rob Templeman, chief executive of Debenhams, is expected to post pre-tax profits of 110m when he unveils full-year figures on Tuesday – a 16.8% fall on last year's haul of 131.4m.

But analysts say sales in the past couple of weeks have taken a serious turn for the worse, and investors should brace themselves for the most disastrous Christmas on the high street in recent memory.

Nick Bubb, retail analyst at Pali International, said sales figures for this week will act as a harbinger for the rest of the festive period.

With schools on half-term and many people receiving their salaries, tomorrow will mark the first week of the Christmas retail push.

"If it doesn't pick up, retailers will be staring disaster in the face," he said.

Sam Hart, retail analyst at Charles Stanley, said: "I definitely think this Christmas is going to be one of the most difficult for retailers for quite a few years. Despite the economic pressures, industry capacity continues to expand. There is a lot of competition out there.

"Price deflation continues to be quite a big issue within the industry."

Many retailers are trying to entice shoppers to part with their pennies by introducing Christmas stock and promotions early. But Hart says the offensive is likely to make little difference.

"It's a slight case of desperation," he said. One survey published last week suggested shoppers could spend up to 1bn less during the festive period this year.

Meanwhile, analysts will press Templeman for an update on Debenhams' ownership when he addresses the City on Tuesday. The chain is owned by the beleaguered Icelandic investor Baugur, which is understood to be at the centre of a bidding war between Topshop owner Sir Philip Green and private equity firms including Jon Moulton's Alchemy Partners and the US investor Texas Pacific Group.

Sources close to the situation suggest Alchemy Partners is currently leading the race for Baugur.

Bubb says Templeman will also come under pressure over Debenhams' debt position. Although it is understood he has reduced the chain's debt to below 1bn, Bubb says it remains a significant cause for concern in the City. "Debt will have come below 1bn but it's still a lot of debt. It's still way too high," he said. "I don't think they are going to get the bears off their back."