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Your support makes all the difference.Begbies Traynor, the business recovery group, reckons almost 140, mainly smaller, retailers are in a financially critical situation. It has also cautioned that as consumers tighten their belts after Christmas there could be a surge of insolvencies during the first quarter of 2013.
It didn't take long for it to be proved right. Jessops was the first high-profile retailer to hit the buffers in 2013. However, others seem to have weathered the austere conditions reasonably well. John Lewis, the de facto retailing bellwether, reported a 14 per cent surge in Christmas sales. House of Fraser said a 6 per cent jump in festive trading helped to make it the "best ever" Christmas for the department store chain.
The ever-reliable Next posted a near 4 per cent rise in festive trading, driven by an 11 per cent jump in online sales. Ted Baker announced sales rose 20 per cent over the Christmas period.
Debenhams had a record December, posting a 5 per cent rise in like-for-like sales with online sales up 39 per cent. But this came with a hefty price tag from promotional activity, which could have an impact on profits. Whereas Mark & Spencer discovered what can happen if too much focus is on margin protection – its general merchandise sales slumped 3.8 per cent.
Morrisons admitted Christmas sales were disappointing, falling 2.5 per cent. In marked contrast, Sainsbury said like-for-like sales over the festive period rose 0.9 per cent. Tesco said like-for-like sales were up 1.8 per cent. However, Kantar Worldpanel, which measures gross, rather than same-store, sales growth, said Sainsbury was the only supermarket of the "big four" to gain market share. It also said Morrisons was the only one to lose sales compared to 2011.
In previous economic cycles, UK consumers could be relied on to spend the economy out of recession, but they are unlikely to come to the rescue this time. Instead, retailers may find profits are unlikely to grow, if at all, as heavy discounting eats into profits.
On the other hand, retailers exposed to emerging markets may find that overseas growth could help soften the blow. Notable companies include Burberry, which generates around 40 per cent of revenues from Asia; Mulberry, which derives 40 per cent of its sales outside the UK and Tesco, which creates a third of its revenues abroad.
Finally, the British Retail Consortium said sector growth has been relatively flat. Additionally, heavy discounting suggests shops are not yet out of the woods.
Consequently, investors may want to tread carefully because this time it is different.
David Kuo is director of fool.co.uk
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