Retail trade faces a bleak Christmas

HIGH STREET shops could be left with as much as pounds 1.6bn of unsold stock as they brace for the worst Christmas sales for two decades.

Cautious shoppers, determined to wait for heavy discounting in January, are holding back from all but the most necessary of seasonal purchases, according to analysis released today by the retail consultants Verdict.

"Based on government data, we're predicting an unprecedented shortfall," said Verdict's senior analyst, Clive Vaughan. "The first eight months of this year were OK, although everyone was expecting a slowdown. But since the end of September there has been quite a dramatic collapse in confidence. The problem is that consumers are being quite rational and they are worried about the future."

The gloomy forecasts follow this month's news that even Marks & Spencer is no longer the impenetrable citadel of commerce. This year, the chain store's shares suffered their sharpest drop since the stock market crash in 1987 after a reported 23 per cent collapse in profits was coupled with warnings that sales had "fallen off a cliff" in September and October.

If trading continues to falter in the six weeks to Christmas when M&S usually makes 40 per cent of sales, there will be huge discounts in January.

The sudden blow to such a robust business is a reliable indicator of what faces all British retailers this month and next, with the probable exceptions of chains like Boots, which deals in essential goods, and Dixons in the booming technology sector.

"What we have pinpointed," said Verdict's chairman, Richard Hyman, "is the amount by which retailers are likely to have overestimated the amount of stock they can sell if they have based their calculations on last year."

Mr Hyman puts consumer concerns down to worries about an imminent recession and job security. "Also, it is rather unfortunate for retailers, but consumers really do seem to have learnt to wait for discounting," he said. "The longer they can hold out, the more they now know that retailers will be forced to bring down prices."

Mr Hyman's analysts are convinced that the stock left on the shelf will amount to 7 per cent of predicted profit, but overall turnover will still be bigger than last year. It is just that the rate of expansion will be much lower than major retailers have come to expect.

"Christmas is just becoming less important," said Mr Hyman. "Over the past few years there's been a process of consumer education."

The gift market will be the most vulnerable, with fashion and jewellery sales shouldering the brunt of the impact. Sales of food and pharmaceutical goods are, in contrast, likely to remain stable.

A spokeswoman for Brent Cross shopping centre in north London said that over the past few weeks trade had been "slightly depressed, but not dramatically - our 'footfall' figures for the number of people coming into the centre are still up year on year".

The general manager of the MetroCentre in Gateshead, Ron Woodman, said it was too early to judge spending levels. He did expect to see early discounting, though. "People will definitely be waiting and looking for the bargains this year."

But Verdict's Clive Vaughan sees light at the end of the tunnel for retailers. "It looks like being a short, sharp shock with things getting better quite early next year," he said.