The year of living dangerously
2008 has been a tough year and 2009 may prove even tougher. But for those with nerve and the right stock, opportunity may be just around the corner. John Ryan reports.
It's hard to know where to start really. With just three weeks before 2008 finally comes to an end, the task of summarising the year's highs and lows (sadly lows predominate) is much more of an undertaking than at any point in the decade so far.
Consider how things have changed. In January, as retailers started unveiling results that showed that in spite of dire predictions, things hadn't really been so bad after all, we all breathed a sigh of relief. OK, so we had all got our heads round the sub-prime crisis in the US and the fact that the credit crunch was being attributed largely to it, but in spite of this, things had turned out nice after all.
Perhaps, after what looked likely to be a sticky period, we might see a rapid recovery. And there was so much to look forward to. Cabot Circus, Liverpool One, Terminal 5 and Westfield - can there ever have been a year in the UK when so much new retail property was being unleashed on an eager public? Facts are facts however and the fruition of these large schemes has, unfortunately, coincided with a downturn in consumer confidence that has become more apparent as the months have ticked by.
Yet things are better as a result of their arrival. Bristol, for instance, has gained a city centre retail hub which catapults it straight into the UK's top 20 shopping destinations, a distinction that it should have had for years, but just hasn't. Equally, Westfield has been the opportunity for retailers such as House of Fraser, Next and Australian boot cult Ugg to put their best feet forward.
All of which is really the point about 2008 from a retail perspective. Just as things have slowed down, the pace of new space emerging from the pipeline has meant that retailers have felt compelled to move onto the next big thing. Visit any of the major schemes that opened this year and it's been difficult not to be impressed by the diversity of the offer and the manner in which existing formats have been adapted in order to keep pace with new surroundings.
The problem with this however is while the new malls look good they are unrepresentative of UK retail as a whole. Most of the new shopping centres, and within this Regent Street has to be included, are about ostentation and, to an extent, regeneration. But the majority of them happen to be populated by mid-market fashion outfits, leaving food and big ticket, edge-of-town retailers pretty much out of the equation.
In fairness, food retailing has a tendency to be a blue chip area when the going gets tough and as the year progressed, Tesco, Morrisons, Sainsbury's and Asda all proved that this is more or less the case. But there has been a wild card which few would have predicted just 12 months ago. This has been the year of the discounter. Aldi and Lidl have seen market-busting growth of the kind that would be impressive when the retail sector was forging ahead at full tilt a couple of years back.
The response of the big supermarkets has been to introduce more value lines of their own with Tesco claiming this autumn to be "Britain's biggest discounter." This may be the case, but it didn't prevent it from seeing its growth slowing radically when it unveiled its third quarter results earlier this month.
The interesting bit will be to see whether shoppers in 2009 buy into the value and premium mix being offered by the major supermarkets. Equally, will they have done enough to halt the seemingly inexorable rise of the discounters or of the increasing tendency of the middle class to beat a path to their doors?
Away from food and the big shopping malls, the area that looks most vulnerable is edge-of-town retailing. Land of Leather, DFS, Homebase, Currys, PC World and a fair few others, have all felt the pinch as shoppers have locked their wallets away. For some it has all been too much. MFI and Rosebys were among a number to enter administration this year and unlike failures before them, there have been previous few wishing to pick up the pieces. In many instances, the stores have just been shuttered. To date however, the biggest shock has been Woolworths' descent into administration. The 815 store-strong chain has been teetering on the brink for years, so it should perhaps be no surprise that it has finally gone the way of all flesh. That said, this is a chain that is likely to exist, at least in some form in 2009, albeit with a much reduced number of outlets.
The question therefore is where has 2008 taken us? Without doubt, Christmas will be tough for retailers, with prices being slashed ahead of the big day. The 2.5 per cent reduction in VAT is likely to prove little more than an expensive administrative headache for most and margins will be under pressure as retailers wrestle with the rising price of imports (owing to a decline in the value of the pound) and the requirement to remain competitive.
This does not however mean that we are all going to hell in a shopping trolley. What we are seeing is, sadly, the outcome of more than a decade of growing belief that the only way is up, being tempered by economic reality. There has to be a point at which things slow down, stop, or even go backwards.
This may be the retail nightmare before Christmas, but there will be life after it - for some, but not all. We will all continue to eat and clothe ourselves, but whether we'll want leather sofas in quite the number that some might wish is a moot point. The other factor that shouldn't be ignored is that it has been said that the luxury end of the market is generally immune to a downturn.
Of course it isn't and it seems reasonable to suppose that luxury shoppers may trade down to the mid-market in the same way that food discounters are seeing the queues at the till swelling on a daily basis.
This puts the likes of Zara, Top Shop, Next and others like them, in a potentially good position, as long as they can keep pace with the dictates of fashion. Whether Marks & Spencer will pull itself out of its current trough will depend on its ability to excite with its clothing and to counter the low prices of the food retailers. On current performance, this looks tricky.
Of one thing we can all be certain. In 2009, retail chains will change hands, deals will continue to be done and a few phoenixes will rise from the ashes. The collapse of the Icelandic banking system will have an impact on chains such as House of Fraser, Iceland, (the food retailer, not the place), Hamleys and sundry others as investor Baugur fights to maintain itself as an entity. But for the fortunate few with access to cash, the coming 12 months will be a period of almost unrivalled opportunity and choice. Sir Philip Green must be watching everything with a hawk-like intensity.