Doom and gloom, but the High Street isn't dead yet

The Christmas trading period is the time when the City gets the chance to slot retailers into the winners and losers enclosure in terms of their trading performance.

This year so far, John Lewis appears to already have one hand on the high street prize while HMV Group seems as far away from that accolade as it ever has.

However, it won't be until Marks & Spencer updates on Tuesday and the dawn of "Super Thursday" next week, when a gaggle of heavyweights from Tesco to Home Retail Group, owner of Argos and Homebase, report that we will get a clear idea of festive trading and the true impact of the snow last month.

No doubt, the snow played havoc with trading before Christmas, as evidenced by Next revealing yesterday it had taken a £22m hit to sales from the severe weather.

But the snow also clouded the forecasts of experts about the outlook for the sector for this year. What is known is not promising – at least for the first quarter. VAT has already gone up and consumers are suffering a squeeze on household budgets, particularly from record petrol prices.

Trying to find a retailer overtly optimistic about the next three months is akin to trying to find a sane person queuing outside a Next store in Milton Keynes at 2.30am ahead its clearance sale.

However, beyond the first quarter, when consumers will have got used to a higher plateau of food and non-food prices, particularly on clothing, the outlook is harder to gauge. After all, many analysts, commentators and journalists were forecasting doom and gloom at exactly this time last year, when there was also a rise in VAT to 17.5 per cent.

While consumers with less money in their pockets are likely to cut back and buy one dress or shirt instead of two when they visit M&S, surely a key lesson of the last two years is that you write off the UK consumer at your peril. In short, most punters seem to keep spending unless they lose – or imminently fear losing – their jobs. Currently, there are about 29 million Brits – marginally up on the start of the year – in full or part-time employment, many of whom have lots more money left in their bank accounts each month as a result of historically low interest rates.

Overall, 2011 will be challenging, most probably tough, for retailers. But unless the number of people in employment falls sharply and interest rates jump, which seems unlikely, it will probably bear a closer resemblance to last year than the bloodbath of 2008.

Source : James Thompson - The Independent