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The scale of the crisis facing Britain's high streets was underlined in dramatic fashion yesterday as Woolworths revealed it was seeking a rescue takeover of its stores and Marks & Spencer slashed its prices by 20% in an attempt to pull in shoppers and shift unsold stock.
Woolworths is likely to get just £1 for its loss-making 800-store chain. The decision to seek a buyer for the shops in mid-November reveals that the chain is dangerously close to bankruptcy. It makes 90% of its profits in the six weeks before Christmas and should be raking in cash at this time of the year, selling Christmas goods and toys.
Marks & Spencer's sale is its first pre-Christmas clearance for four years. The M&S boss Sir Stuart Rose has often criticised so-called "guerrilla sales" for antagonising shoppers who have paid the full price for the same merchandise.
However, M&S stores are opening at 8am today and many of the biggest outlets are staying open until midnight to give shoppers extra time to take advantage of lower prices.
Other retailers feeling the squeeze include Sports Direct, owned by the billionaire Mike Ashley, and DSG, formerly known as Dixons.
DSG's shares lost 31% of their value yesterday, closing at just 15p. At that level the business has a value of just £275m - equal to about 10 days' sales. The group is facing declining prices as well as fewer sales.
Retailers, who employ one in 10 of the UK workforce, are facing a perfect storm of trading problems: consumers have stopped spending as fears escalate about house prices and unemployment and the cost of buying in goods from overseas manufacturers is rising as a result of the fall in sterling. At the same time credit insurers, who protect suppliers from non-payment of invoices in the event of a retailer going bust, have stopped providing cover to some store chains.
One City retail specialist said the outlook for high street operators was exceptionally tough: "Christmas 2008 has the feel of being the worst retailing Christmas for many years." Retail executives fear a series of financial crises and collapses in the coming weeks, especially with quarterly store rents due on December 24.
The grim news from the high street came as leading shares took a fresh tumble, losing nearly 5% of their value. The FTSE-100 closed down 202.87 pts at 4005.68.
Analysts say clothing sales have gone into steep decline in the last two weeks and M&S is not the first to slash prices at a time of the year when retailers hope to be selling at full price.
Debenhams is running a 25%-off threeday sale and Bhs, which offered 20% off everything a week ago, now has up to 50% off selected lines. Sir Philip Green's Arcadia brands - which include Top Shop, Dorothy Perkins and Miss Selfridge - are also said to be considering big price reductions.
City retail specialist Freddie George, at broker Seymour Pierce, said the M&S one-day reduction was "a clear sign that sales are well behind budget in the lead up to Christmas". He is urging investors to sell M&S shares. Yesterday they sank to 200p - their lowest level for more than eight years. Just 18 months ago they were changing hands at 740p.
Sports Direct's shares also hit a record low, losing 13% of their value to 32p. Investors who bought the shares when they came to the market less than two years ago have now seen 90% of their value wiped out.
Woolworths hopes to sell its stores to Hilco, a US-based group that specialises in distressed companies. Hilco may put the business into administration so that it can offload its unprofitable stores. That is likely to mean large job cuts among Woolworths' 25,000 store workers.
Woolworths refused to comment but a source familiar with Hilco said: "You don't get into bed with a group like Hilco unless things are pretty tight".
Hilco would pay only a nominal sum for Woolworths, but would also take over some of the retailer's near-£300m of debt. The store chain said a deal was not certain. Woolworths would retain its two other businesses, which distribute DVDs, books and music to other retailers.
The beleaguered retailer's shares collapsed to just over 2p, valuing the 99-year- old retail group - a cornerstone of shopping centres in towns and cities throughout the country - at just £34m.
In recent years the chain has been squeezed by the supermarkets, internet retailers and specialist high street stores. But it remains a huge operation, with sales of about £3bn a year. It still sells more sweets than any other retailer and is among the top five in entertainment sales, toys, children's clothing and homewares. Financially, however, it is on its knees. In the first six months of this year it crashed £100m into the red.
The new dip on the high street came as department store group John Lewis's sales were last week down a huge 14% on 2007 levels. Sales have also gone into reverse at its online operation for the first time since JohnLewis.com started in 2001.
Store chains which have had at least some of their credit insurance removed include Woolworths, Debenhams, Currys, Focus, Poundstretcher, Ideal World and TJ Hughes. Without cover retailers have to pay for supplies upfront, in cash, rather than having the time to sell goods to customers before settling suppliers' bills.
Yesterday a source close to Woolworths said the removal of its credit cover had been a key factor in its decision to seek a rescuer.
MPC mulled 2% cut
A fresh cut in interest rates looks likely next month after the Bank of England revealed its monetary policy committee considered cutting the cost of borrowing by more than the 1.5 percentage points reduction it announced two weeks ago. In a clear signal that a new cut is on the cards when the committee meets in two weeks, the minutes of the last meeting showed members believed "a very significant reduction in bank rate - possibly in excess of two percentage points - might be required".
The City now expects a 0.5 cut, to leave rates at 2.5% - within sight of the all-time low of 2%.
The Bank said it wanted to see the size of Alistair Darling's pre-budget report before assessing the scale of a further easing of monetary policy. The MPC said it also wanted to see whether October's coordinated efforts to shore up banking had increased the flow of credit. It is concerned that a bigger cut in the bank rate would scare the City.
- Woolworths
- Marks & Spencer
- DSG
- Sports Direct International
- Retail industry
- Credit crunch
- Economics
- Recession
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