High Street Crash

Nov. 27 (Bloomberg) -- Woolworths Group Plc appointed administrators for its chain of stores and MFI Retail Ltd. collapsed, putting almost 30,000 U.K. jobs at risk, as the economy’s slide caused consumer spending to slump.

Woolworths, which opened its first shop in 1909, had Deloitte appointed as administrators today after an attempt to sell the stores ended. MFI appointed administrators yesterday.

I fear that this is barely even the tip of the iceberg. Many retailers make almost all of their profit at Christmas and this year they are being hit by at least a 10% fall in volume and up to 50% fall in selling prices, taking them well into the red. Due to the shortage of credit for business, few firms will be able to extend their debts to tide them over.

Bad though this is for the retail sector, and the employees and their families, it will also hit the suppliers of products and services to the retail sector. I have argued for many years that retail is the engine behind the western economies. Almost everything else produced or service rendered is, at the end of the day, strongly linked to retail in one way or another. When the retail trade collapses, so does everything else.

It will be interesting to watch the supermarkets. We all have to eat. Will they retain their market share or will food start to be distributed through local markets, traders, 'white van man', etc. at lower cost and margins? For the time being, the huge purchasing power of the supermarkets and their ability to hedge and buy forward might give them the advantage but there is a huge market opportunity for small traders to undercut them by a useful margin. Anyone can drive a white van. There are plenty of good, highly motivated people with retail experience out there who now have no job and in most market towns in the UK there is a right to erect a stall.

I stand by my earlier comments that the more enlightened supermarkets will open smaller convenience stores (as J. Sainsbury has recently announced) but each day that goes by makes the outlook look bleaker. As politicians dig us deeper into debt for very short-term gain, we will sink lower. We might be looking at the closure of shopping malls and hypermarkets on a grand scale - a collapse. This would start at the luxury end of the market and work down. The small traders will be there to take the business for essentials and this movement will be driven from two directions....

From the top down --- Luxury goods and high-overhead malls start to lose money and close

From the bottom up --- Small traders - white van man - starts to take volume from established fixed retailers.