Store closures, layoffs, and bankruptcies among British retailers underline the seriousness of the economic downturn

Watch full size video:

Shoppers walk past a branch of Woolworths in Camden Town, London, on its be unconsumed twenty-four hours of business, Jan. 6, 2009. Peter Macdiarmid/Getty Images

By Mark Scott

If 2008 was the year financial services melted down in Britain, 2009 is shaping up during the time that retail’s second to implode. The once-booming retail sector—known in Britain to the degree that the High Street—is reeling as silly consumer confidence, tight credit, and rising unemployment throttle sales and profits.

The selvage of victims is eye-popping. Upscale clothing and food seller Marks & Spencer (MKS.L) said Jan. 8 that its fourth-quarter sales fell 7.1%, and announced plans to close 27 outlets and lay along 1,230 workers. Woolworths, which failed to find a white knight last year as it wobbled toward insolvency, closed the last of its 807 British outlets on Jan. 6, putting 27,000 employees out of work. And music emporium Zavvi, originally owned by Richard Branson, has called in the administrators and closed 22 of its 114 outlets as management struggles to sell the employment.

All told, says insolvency and restructuring consultancy Begbies Traynor (BEG.L), nearly 2,000 retailers before that time are in bankruptcy proceedings in Britain. The carnage is agreeable to get worse. By yearend, predicts credit researcher Experian (EXPN.L), more 135,000 storefronts—1 in 7 across Britain—may be unthinking. And up to 135,000 retail workers could lose their jobs by the end of 2009, says the London-based Center in favor of Economics & Business Research. "There definitely are tough times ahead," says Jonathan De Mello, director of Experian’s retail consultancy.

The implications for the broader economy are worrisome. Consumer spending accounts for 65% of British gross domestic product, and retail is the third-largest source of employment at the back of business services and health care. A High Street slowdown so translates readily into sharply let down economic literary work, declining tax revenues, and higher spending on jobless benefits. Economists figure Britain’s GDP contracted 1.2% in the fourth cut to pieces of 2008, after falling 0.6% in the preceding quarter. Brokerage Morgan Stanley (MS) now predicts Britain’s overall GDP will shrink 1.1% in 2009.

Even before the in the greatest degree new spurt of retail layoffs, Britain’sitting unemployment rate even now had jumped almost one percentage point annually, to 6%, as of October, according to the Office for National Statistics. The last time joblessness was that high was in the before anything else moiety of 1999. Now, with retailing expected to remain in the doldrums to the time when 2010 at the earliest, Morgan Stanley figures unemployment could hit 7.4% this year. Other, more pessimistic estimates range up to 9%.

So far, government efforts to help the retail sector haven’t made much difference. To spur spending, the government trimmed Britain’sitting value-added tax (VAT) before Christmas taken in the character of part of an overall stimulus package. Most analysts say the unobtrusive cut was too little, too late. Likewise, the Jan. 8 judgment by the Bank of England to chop interest rates to a record low of 1.5% may not do much to ease credit or kick-start consumer expenditure. Prime Minister Gordon Brown is at present rumored to be mulling a new round of rate cuts to goose the economy.

Until stimulus sets in, retailers are left scrambling to economize themselves. Over the Christmas holidays, some offered discounts of up to 90% to make love to shoppers. That brought short-term relief for a hardly any: Upmarket sphere of duty store Selfridges, for instance, recorded the most useful hour in its 100-year history on Dec. 26 as customers snatched up enjoyment brands like Louis Vuitton (LVMH.PA) and Burberry (BRBY.L) for knocked-down prices.

But slashing prices cuts both ways. "All the discounting has ended is squeezed margins," says Tarlok Teji, head of British retail at consultancy Deloitte. He reckons that sales promotions will help keep like-for-like sales broadly flat over the first half of this year, but cautions that discounting will hit profits. Margins will likely fall 30% to 40% in 2009, and demand in favor of big-budget items such as flat-screen televisions and home furnishings will remain weak even despite price cuts.

"More retailers be disposed enter administration in February and March," Teji says. "Companies will have to batten down the hatches till the administration starts to save."