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LONDON — T.S. Eliot wrote that April was the cruelest month, but for his fellow Brits, it’s most certainly going to be January.
This story first appeared in the December 23, 2008 issue of WWD. Subscribe Today.
Next month will be the moment of truth for British high street retailers — when the winners and losers emerge, retail experts here said.
Nick Hood, a partner at the insolvency firm Begbies Traynor, made headlines here when he predicted 10 to 15 national and regional chains would go bust by mid-January.
In an interview, Hood stood by that forecast and said fashion chains “would not be exempt” from collapse. However, he declined to name names.
“Fashion retailers are inherently fragile businesses,” he said. “I wonder if the clothing ranges that retailers committed to six to nine months ago are right for a changed, more austere mood.”
With consumers cutting back in general, he said an oft-overlooked demographic — middle-class men and women who were living off savings, such as retired people — are putting the brakes on spending because they don’t want to appear extravagant or because they don’t have the cash.
“What we are living through is the financial equivalent of 9/11,” Hood said. “It is something that no one alive today has ever been through, and it will change consumers’ mood and behavior for years to come.”
According to preliminary figures from Experian FootFall, shopper numbers were down on average 8.7 percent for the weekend of Dec. 20 to 21 in the U.K., despite deep discounting across the board from luxury outlets to high street chains.
Hood said the most vulnerable retailers in the New Year will be those with high levels of borrowing — and chains that have expanded too quickly.
Already Britain has seen its share of retail casualties: Woolworths; The Officers Club, the discount men’s wear chain, and MFI, the mass market furniture company, all went bust in the last month. Whittard of Chelsea, the Baugur Group-owned retail chain selling tea, coffee and crockery, was on the brink of administration (the U.K. equivalent of bankruptcy), according to British press reports.
Earlier this year, brands including Biba, Hardy Amies, Ghost and Marchpole, the clothing manufacturer and owner of the Jean-Charles de Castelbajac label, all went into administration.
Ghost was rescued by the U.K. retail entrepreneur Touker Suleyman, and Hardy Amies was purchased by the private investment fund Fung Capital.
Allegra Hicks was purchased by AH Lifestyle Ltd., a new company backed by a private investor.
Jason Granite, a corporate restructuring specialist, this month purchased Amanda Wakeley. Wakeley herself has since left and the company’s long-term future is unclear, according to sources.
Meanwhile, Icelandic retail investment group Baugur, while not in administration, is struggling with as much as $2 billion in debt.
Insolvency expert Hood is not the only one sounding the January alarm.
George Wallace, chief executive of MHE Retail, a Europe-wide retail consultancy, said January will be pivotal because retailers will finally come face-to-face with their gross margins from Christmas sales.
However, Wallace believes women’s fashion companies may fare better than their men’s wear counterparts. “The chains worst hit will be those selling big-ticket household items — and men’s wear always suffers more than women’s wear in these times,” he said.
He added that the companies with the strongest balance sheets will survive. Marks and Spencer Group plc, British Home Stores, Debenhams and John Lewis — high street stalwarts — will be able to ride out the storm because their fundamentals are sound, Wallace said.
The news is not all bleak: Some retailers are reporting a bounce in sales from foreign tourists — especially continental Europeans — because of the new weakness of the pound.
“Our sales to overseas customers, based on our tax-free shopping information, continue to be well up on last year,” said Christine Watts, communication director at Selfridges. “For the whole of this year, we’ve seen a more than 30 percent increase — and last week exceeded that by a very large margin.”
She said that for the second week running, sales to Chinese customers have seen a “massive” increase. And sales to customers from the U.S. were up more than 50 percent last week. Sales to customers from Mideast countries and Nigeria also continue to be strong, she said.
Liberty, too, has seen a spike in foreign visitors looking for bargains. “Over the past four months, we’ve seen a 30 percent increase in euro credit card transactions,” said a spokeswoman for the Regent Street store.
Jace Tyrrell, a spokesman for the New West End Company, which promotes businesses around Bond, Oxford and Regent streets, was pleased about the return of Americans.
“They are our biggest market — and they’re back at the branded stores like Selfridges, Liberty and Fortnum and Mason,” Tyrrell said. However, he’s unsure whether it will last. “We realize it’s going to be tough for America next year.”