Austerity-hit retailers widen north-south gap

Stores look to ease pressure by concentrating on more affluent – and profitable – southern counties

The north-south retail divide is growing as chains scale back expansion into the north to concentrate on the more affluent and profitable south.

Jones Lang LaSalle, a comercial property agent, has just published a report on the retail industry which found that parts of the north will be hit hard. "Job uncertainty combined with the VAT rise and the post-Christmas curb in spending will all have an inevitable negative impact on purchasing power and consumer confidence, particularly in the north of England, resulting in lower retail sales," say the report's authors.

"Several retailers including expansive international retailers such as Uniqlo are focussed on acquiring new stores in the south as opposed to some parts of the north."

Retailers including America's Best Buy have recently pulled out of plans to open shops in the north amid fears that consumers there are being hit hardest by job losses and government cuts. Anecdotal evidence from retailers has shown the North-east and Northern Ireland are already hurting the most.

All eyes will be on the clutch of retailers reporting on the Christmas sales period this week. Food retailers such as Morrisons will be solid but not outstanding while Marks & Spencer is forecast to report a 2 per cent increase on like-for-like sales.

The results will give more details of how the high street has coped with the horrendous Christmas weather and follows last week's disastrous results from chains such as HMV, Alexon and Mothercare and disappointing figures from Next.

The results have highlighted the chasm forming between the high street's heroes and the losers. Those with strong brands and a successful internet presence and which are regarded as offering good value for money have done well – across the discount, mid-market and high end of the retail spectrum.

John Lewis reported an "outstanding" Christmas with record volumes, including a 7.6 per cent rise in like-for-like sales, and department store group House of Fraser is expected to report tomorrow a record trading period for the five weeks to 8 January.

Many luxury brands have also reported strong trading periods and the growth of the segment continues apace.

Retailers have had not only the bad weather to contend with but also rises in VAT and the cost of cotton, forcing prices to soar while margins are squeezed. Jonathan De Mello, the head of retail consultancy at CB Richard Ellis, a commercial property adviser, said: "Of bigger concern than the VAT increase is the sharp rise in cotton prices driven by the poor Chinese crop and a relatively weak pound, which has pushed up the cost of buying cotton from China and elsewhere.

"There is a limit to the extent to which retailers can pass on these rising costs to shoppers in the form of higher prices, and consequently they will see an impact on their margins that will be far more substantial than the effect of the rise in VAT."