Despite some glimmers of hope offered by bellwether retailers John Lewis and Next, analysts forecast "dark days" ahead for many high street chains in the UK, as a combination of economic and technological factors drive a shift in consumption models.
2011 was a brutal year for the retail sector. Shoe store Barratts' administrators slashed 1,600 jobs, and lingerie chain La Senza entered administration, following in the footsteps of Blacks, the outdoor store, and several smaller groups. French Connection issued a profit warning, and analysts and retailers all offered dampened expectations for sales growth.
Electronics and media retailers have also had a very tough year, and other high street staples, including Thorntons and Game, also gave warnings as sales slumped.
Next, one of the leading groups in the mid-market, and one of the few companies who still hold off from heavy discounting until after Christmas, said that its Christmas sales had been "disappointing", although it did say that its online performance went some way to offsetting the 2.7% year-on-year fall in sales at its bricks and mortar stores.
Christmas sales across the board were down on 2010 figures. Synovate, a research company, said that footfall on December 23rd in 2011 was 4.7% lower than the previous year, and Christmas Eve numbers were down 1.5%.
Next's sales were put under pressure by heavy discounting at their competitors. In the run up to Christmas, as retail figures continued to show that consumer sentiment was weak, retailers entered a game of chicken with their customers, holding of on sales for as long as they could, while shoppers stayed away.
In the most part, it was the retailers that blinked first.
For me, bringing forward these sales for many firms was a sign of desperation on the high street. They had to do it in order to bring people through the doors," Jon Copestake, retail analyst at the Economist Intelligence Unit, said. They reported a last minute bump in sales, and that bump in sales was driven by discounting and squeezed margins."
"The disappointment that Next faced was that it didn't need to, or it refused to, bring forward its sales, and as a result Next found itself undercut by competitors… Next may not have had the Christmas footfall that it may have warranted, but in a way that shows the desperation of Next's competitors," Copestake said. "The fact that they've had to discount so heavily before Christmas means there's probably dark days ahead for many of them."
The luxury and high-end sector has remained relatively strong, as affluent global customers remain largely insulated from the economic downturn and as a new class of consumers drives growth in emerging markets. London, too, has been bucking the national trend.
John Lewis defied the downturn to report nearly £600m of sales over the festive period, but the department store was buoyed, analysts said, by new stores opening and by its size and the diversity of its offering. Its clientele
The bottom end of the market might have been expected to outperform during the downturn, as shoppers downgrade their expectations. However, as production costs increase, inflation and value added tax (VAT) rises bite and customers close their wallets, even pile-them-high, sell-them-low stores have begun to feel the pinch.
"That's where I think we will see problems in the next month or so," Maureen Hinton, lead retail analyst at Verdict, told the Huffington Post UK. "The ones that are on low margins and have increased cost, and especially the ones that have debt they are going to need to service, they're going to find it pretty challenging because they won't be selling the volumes that they need to."
The rise of discount retailers in the clothing sector has been stellar, driven in part by falling manufacturing and input costs, by low inflation, wage growth and the availability of credit. That might, Hinton said, be on the verge of a turnaround.
"There was this abandonment of buying a few years ago," she said. "We've had a decade of price of deflation. Everything in clothing was going cheaper and cheaper every single year. So at the end of the decade you were paying much less than you were in the 90s, so you could buy more. But I think as prices have gone up, people have started to question whether they do need this at all. It really is a case that retail has to work much harder to convince us to spend with them.
"I think we'll definitely see consolidation in the value sector. We've got too much capacity in the UK anyway. We will see the weaker ones dropping out yet again. That's been happening really over the last three-four years. We can't sustain the growth we've had in the retail sector over the past 40 years because we've reached saturation point, almost."
Some analysts have pointed to the relative success of Next's online arm as an indication that the shift away from high streets and towards online is quickening.
"I think that depends on how the Christmas period has worked for the consumer in terms of online sales," Tim Denison, director at Synovate Retail performance said. "Last year, in the run up to Christmas we had the snow and a lot of disappointed customers. This year there was a lot of effort and expense poured into making sure that consumers got their presents on time. If that has come to fruition then I can only see more consumers choosing to spend more online. Whether that means shopping on the high street becoming less significant, I think that depends on how the retail outlets differentiate themselves or choose to operate in conjunction with the online channel."
The death of the high street has been called a number of times and, as Copestake said: "I think we've been teetering on this edge for a while where we do shift completely into a new mindset for the high street and for retail generally. The Christmas indications are that this is continuing. I think we're easing gently into it… rather than punching into it."
That there will be some form of structural shift in high street retail is undeniable, however. With some online retailers looking to take advantage of the relatively low cost of taking out bricks and mortar premises, the future could be multi-channel, rather than all online.
Localisation is also likely to be a trend, as retailers look to make the most of their limited resources to target specific areas and demographics, according to Hinton, who said that a reorganisation of the market will see companies realise that they do not need a blanket presence on high streets.
"It means you don't necessarily have to be in city centres," she said. "A lot of retailers like Fat Face or White Stuff are better off in mid-market towns with a local catchment than perhaps in big town centres. It's more a case of getting an optimum model for your particular offer, having enough space and all the technology that transactional websites and m-commerce will provide for you, so you've got all your options covered."
The market will inevitably become more cut throat, as what little growth there is to be had will have to be prised off the competition.
"I think it's the end of the high street as we know it, which is full of all the major retail brands fascia. I think it will be much more mixed," Hinton said. "It's a case of coming up with models where you can exist with very little growth in the market. And the main way to do that is to take it off competitors."