Taking stock: Austerity vs retail shares

By Neil Craven for The Mail on Sunday
Updated: 07:52 EST, 3 October 2010

 

Predicting the crunch point that forces Britain's shopaholics into cold turkey has become a thankless task.

Groaning personal debt didn't do the trick - we simply borrowed more. When recession hit and the banks refused to lend, low interest rates cut our mortgage bills, leaving us enough spare cash to satisfy our shopping desires.

So, has the moment finally arrived?

This month the Government will announce public spending cuts that will lead to job losses. That will be followed by January's rise in VAT to 20%.

Record cotton prices are not helping to steady pulses in the sector either.

The City will have a clearer picture this week when Tesco, Marks & Spencer and Sainsbury's, which together account for almost a quarter of Britain's retail sales, comment on prospects.

On the positive side, High Street sources suggest M&S had a reasonable summer and September's lower temperatures are likely to have given a helping hand to sales of autumn clothes ranges.

Meanwhile, Sainsbury's directors are making bullish comments about their confidence in the supermarket chain's strategy. Planning applications, which can take years to process and approve, are coming through steadily and its non-grocery strategy is picking up pace.

Tesco and Asda have been building non-food ranges for years, assuming that if they can get you in the store to buy food, you will pick up other things.

Now Sainsbury's has everything to play for as it aims to close the gap in non-food sales. Parts of its latest store, in Crayford, south-east London, look like well-groomed versions of WHSmith, Woolworths and Currys rolled into one.

More giant stores will follow. Chief executive Justin King will be unlikely to miss a chance to say this week how well the opening has gone - it was packed by 9:30am on Thursday - and how pleased he is with last month's confident relaunch of the Essentials food range.

The City knows a good story when it sniffs one out - the shares have surged 23% in the past three months against 12% at Morrisons and 19% at Tesco.

But it will be comments on consumer confidence and the outlook for spending this Christmas and into next year that will be closely analysed.

Sir Terry Leahy, Tesco's outgoing chief executive, will kick off on Tuesday by announcing first-half profits, followed by sales updates from Sainsbury's on Wednesday and M&S on Thursday. By Thursday afternoon, when the Bank of England reveals its interest rate decision, we will have a better view on whether consumers will be having their cold turkey served rather early this year.