Retailers gripped by spending freeze

Only the leisure side is likely to buck the consumer slowdown.

Retailers will not be feeling particularly festive this Christmas as a fog of gloom descends on the high street, despite interest rate cuts and a buoyant gaming market bucking the trend.

Retailers feel that the Bank of England's 0.5 per cent interest cut to 6.25 per cent - the third reduction in three months - has come far too late as the high street reels from a slowdown in consumer spending.

Commenting on November sales figures, Bridget Rosewell, chief economist at the British Retail Consortium (BRC), said: 'Sales growth has almost come to a halt on the high street, with two months in which like-for-like sales are down on the previous year.

Last year, there was a late pick-up for Christmas, but the flat trend appears to be increasingly well established.'

Andrew Higginson, chairman of the BRC economic affairs committee, added: 'Customers remain extremely cautious in the face of a recession. Retailers face a white knuckle ride between now and Christmas as they try to hold their nerve on prices in the face of higher stocks.'

Clive Bishop, general secretary of the National Association of Specialist Computer Retailers (NASCR), said: 'Christmas hasn't really happened on the high street - it's one of the quietest I've seen in 15 years. Retail is generally having a tough time. The latest interest rate cut should have come earlier. The only area of businesses that's doing alright is the leisure side.'

Analysts have cited educated consumers as part of the problem. Many are putting off their spending sprees until January, waiting for better deals as retailers attempt to shift unsold stock piles. However leisure is one area where prices are not expected to drop significantly in January and consequently business is booming.

Paul Donnelly, managing director of Gem, said: 'The industry is probably about a week behind compared with the same period last year, but it's picking up quickly. On the leisure side, retailers are doing all right. Many companies learned from boom and bust periods and companies are generally a lot more lean and mean.

Although high street giants Dixons and Comet have said they expect a competitive Christmas, the mid-range players have been exhibiting a high level of bravado.

Jon Gilbert-Harris, managing director of Tiny Computers, said: 'We have seen no evidence of a retail slump - I believe the doom and gloom predicted by some analysts is all hype. Competition is fierce and traditional retailers are becoming more price-competitive.'

Goran Mannerstrane, European retail director at Gateway, added: 'We are doing well in the retail sector and expect a prosperous Christmas. We will be going nationwide during the next 18 months, with between 30 and 50 stores.' Gateway opened its fourth retail store last week in Manchester.

Mike Welch, analyst at Inteco, said: 'The leisure side is doing well - apparently Sony sold 120,000 PlayStations in one week. The rest of the industry is facing a tough Christmas. Dixons will have to compete with growing competition from the likes of Tiny, Time, Tesco and Lidl, as well as face the bad press it has recently received.'

George O'Connor, analyst at Granville Research, added: 'Many industry watchers are saying it's the worst Christmas for 20 years. Some of it is down to a shift in consumer psychology - they know prices will drop in January. Even the US is suffering. Shares in internet companies dropped last week because the expected orders haven't materialised in the touted e-Christmas.'

Financial analysts believe the industry will be spurred on next year, as interest rates continue to fall to an estimated 5.5 per cent and the UK moves further into line with the rest of Europe, which is aiming for three per cent.

 COMPARISON OF PRE-CHRISTMAS SALES
 % increase in retail sales value
                    1996               1997                 1998
               Total Like-for-like   Total  Like-for-like   Total  Like-for-like
 September      8.7       5.2          5.5      2.1           4.1       1.2
 October        9.4       5.9          8.7      5.0           1.9      -0.6
 November       8.0       4.9          4.4      1.1           2.4      -0.4
 December       7.8       4.5          7.9      4.8           n/a       n/a