UK retailers stuck in their own recession

BRITAIN'S high streets are in deeper crisis now than they were at the height of the last downturn even though the economy as a whole is not in recession, a report today suggests.

The number of profit warnings issued by retailers listed on the London Stock Exchange in the first six months of the year was almost double the tally for the whole of 2009 when Britain was mired in the worst recession since the Second World War.

Firms such as Clinton Cards, HMV, Mothercare, Dixons Retail and Argos-owner Home Retail Group have felt the pinch of what experts are now referring to as the high street's "second recession".

According to Ernst & Young's latest profit warnings report today, signs are that this latest squeeze on shoppers could have even more damaging consequences than the first, with some parts of the retail sector "seemingly on their knees".

A total of 26 profit warnings were issued by well known shopping brands in the first half of the year with the likes of Mothercare, HMV and Clinton Cards issuing more than one.

Experts put the tough trading conditions down to a significant decrease in households' disposable incomes. While during the recession of 2008-2010 many shoppers saw the amount of cash in their pockets go up because of the decrease in interest rates and lower mortgage repayments, inflation and anaemic wage growth has finally caught up with households.

Colin Dempster, restructuring partner at E&Y in Scotland, said: "The latest figures show that household disposable income is falling 2.7 per cent year-on-year, with tax rises, benefits cuts and below- inflation wage increases really taking their toll on consumers' ability to part with their cash at the tills."

Although in numerical terms there have been fewer profit warnings so far this year than during the high street's "darkest days" in 2008, Dempster said in reality conditions are just as bad, as there are 40 per cent fewer listed retailers than three years ago.

"The actual proportion of listed retailers warning is virtually identical in 2011 as it was in the troubled times of 2008, and future prospects don't appear to be getting brighter. The next three months will stretch more retailers to the limit as they approach the next quarter rent day and seek credit to stock up for Christmas," he said.

He added that the crisis could soon trickle down to UK manufacturing firms that supply shops in this country as they come under pressure to reduce their costs while also facing soaring raw material prices.

Robert Clark of the Retail Knowledge Bank said: "It's coming home to roost for the weaker brethren. Growth is slow and it's going to be slow for the next three, four, five years. Good managements are looking at which stores are unprofitable."