Jun 10, 2009
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AlixPartners sees more retail failures

Jun 10, 2009

By Mark Potter

LONDON (Reuters) - A steady stream of retail failures is likely to continue in the coming months and 2007 consumer spending levels may not be seen again, a specialist in turning round struggling retailers said on Wednesday 10 June.

"I think consumer spending habits have changed, certainly for the medium term and possibly the long term," Pippa Wicks, a managing director at business consultants AlixPartners, told the Reuters Global Retail Summit in London.

Citing proprietary research carried out in the United States, Wicks said some consumers might spend the next ten to 15 years rebuilding savings that have been ravaged by a downturn which has hammered equity and property valuations.

"What that translates to is a much lower level of demand across the board," she said, adding a similar pattern was emerging across much of Europe.

Many analysts predicted a deluge of retail failures around Christmas and were pleasantly surprised by the limited number of major casualties, which included U.S. electricals retailer Circuit City and British toys-to-DVDs group Woolworths.

Wicks said there had not been more failures because landlords, in Britain at least, had started to become more flexible about demanding three months rent in advance, and banks were also beginning to give retailers more time.

Nonetheless, a procession of firms have run into trouble, such as French fashion house Christian Lacroix, which sought creditor protection last week, and German retail and tourist group Arcandor (AROG.DE), which filed for insolvency on Tuesday 9 June.

"My view is that I think we should expect a steady stream to continue," Wicks said.


Wicks saw few signs of "green shoots" of economic recovery. "I think if anything it's going to be a W-shaped recovery and we might be about the go down the other side of the W any moment."

And when a recovery does come, it is unlikely to drive consumer spending to pre-recession levels, she said.

"They were unprecedented times. The availability of consumer debt, the ability to leverage up and use your house to get even more debt .... 2007 levels were a historic high.

"What's more of a norm? I don't know. Will we see like-for-like (sales) growth? Yes, we'll see 2 to 5 percent going forward -- something like that -- when we get sorted out. We'll see some growth, but it won't be anything like it was."

Wicks said market leaders, supermarkets and online retailers were likely to cope best, but the latter would only accentuate an excess of store space on shopping streets.

In such an environment, there is little prospect of mergers and acquisitions saving struggling retailers, she said.

"If you're a domestic retailer there's lots of sites available and if you've got a good brand name, what are you buying it (a struggling retailer) for?"

"You can grow organically much cheaper than having to go and buy a load of sites, assets and people and have to rebrand it."

(Editing by Jon Loades-Carter)

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