Former Asda boss predicts further high street gloom as HMV issues third profit warning in as many months
Former Asda boss Andy Bond has predicted two years of misery for high street retailers as the financial crisis finally hits home for consumers.
"You're kidding yourself if you think the worst is over and we've had a consumer recession – it's ahead of us," Bond told senior retailers at the Retail London conference. "The retail recession is ahead of us: 2011 and 2012 are going to be very tough for those of us who are exposed to the UK economy."
Bond, who was chief executive of Wal-Mart-owned Asda for five years, said Britons who kept their jobs during the "official" recession were now worse off as higher fuel and food costs ate into their disposable income.
"We're going to see an extended period of constrained consumption," he said, adding that he predicted a "long-term trend of trading down" as shoppers scrimped and saved. New figures on Tuesday showed sales of organic produce in supermarkets down 7.7% last year.
Bond's grim predictions came as struggling entertainment retailer HMV issued its third profit warning in as many months. Annual profits are now expected to be around £30m, less than half the figure pencilled in by City analysts just six months ago and highlighting the extraordinary collapse in sales at the stores. The deterioration makes the sale of its Waterstone's book chain look inevitable, analysts said.
Another struggling retailer, fashion chain All Saints, has been given until the end of the week to find new cash or face administration. On Tuesday it was in rescue talks with a private equity firm backed by computer tycoon Michael Dell.
Currys owner Dixons and Mothercare also issued profit warnings last week. Marks & Spencer is expected to add to the gloom on Wednesday, with the high street bellwether likely to say its clothing and homewares sales have declined 6% in the first three months of this year.
Dixons boss John Browett said the spectre of government cuts was having a "chilling effect" on consumers' willingness to spend, with public sector workers sitting on their hands as they waited to learn if they would keep their jobs.
Analysts say the going will get tougher for retailers. Tomorrow is being dubbed "Worse-off Wednesday" when sweeping changes to the tax and benefits systems come into force at the start of the new fiscal year, leaving the average household about £200 worse off.
Last week official figures confirmed that Britons' take-home pay fell for the first time in three decades in 2010 after prices rose faster than incomes. The Office for National Statistics' figures said that real household disposable income – the total income of Britain's working and unemployed populations after taxes and adjusted for inflation – dropped by 0.8%, with that decline expected to accelerate to about 2.0% this year.
The gloomy mood was not lifted by the Organisation for Economic Co-operation and Development (OECD), the influential Paris-based thinktank, which on Tuesday said Britain's economic growth would lag behind five of the G7 countries in the second quarter of this year, only outperforming disaster-struck Japan.
In its latest healthcheck on the global economy, the OECD said it expected the UK to avoid outright contraction in the three months to June but to expand at an annual rate of 1% during the quarter. Many other countries saw their growth prospects revised up by the OECD after signs of recent strength, with the US now expected to grow at an annualised rate of 3.4% in the second quarter of 2011.
But a separate survey of the UK services sector showed activity expanding at its fastest rate in more than a year in March, prompting City analysts to revise up their growth forecasts for the first three months of the year and fuelling speculation that the Bank of England might raise interest rates next month.
The CIPS/Markit report said business activity in the services sector rose strongly last month, picking up from 52.6 to 57.1, where a reading above 50 indicates expansion in the sector.