UK high street retailers are hitting new lows

ON A BLACK day for the UK retail sector, early-morning shoppers were greeted with a rare sight yesterday - queues of customers waiting for Woolworths to open.

Some were driven by a sense of nostalgia, having heard that the 99-year-old variety store chain, famous for its pick'n'mix sweet counters, had collapsed into administration. Most, however, were looking to bag bargains.

There were customers, too, at MFI - a less misty-eyed bunch, most of whom were seeking reassurance that their orders would be fulfilled. The staff did what they could but were desperately seeking reassurances themselves - if they will be paid today or if they will still have a job next week.

The dramatic collapse of two of Britain's best-known retailers just weeks before Christmas has put more than 30,000 jobs at risk. But the shockwaves from the administration of Woolworths and MFI will sweep through the retail sector.

With the accountants now in control of both companies, and keen to raise as much cash as they can, rival retailers fear they will be hit by distressed sales at rock bottom prices just when they should be enjoying their peak pre-Christmas trading.

Piling on the agony yesterday, on one of the bleakest ever days for the British high street, were DSG and Kingfisher.

DSG, which owns Currys and the PC World chain, axed its dividend as it slumped into the red to the tune of £30 million (€35.8 million).

This is the first time it has made a first-half loss in a quarter of a century, and marks a dramatic reversal from the previous year, when it reported profits of more than £52 million for the comparable period. "We're not another Woolies," insisted DSG chief executive John Browett.

The company has cut back its spending plans but still has cash in the bank - unlike Woolworths, where debt rose to £385 million.

In the final days before the administrators were called in, suppliers to Woolworths were demanding payment in cash and it became impossible for Woolworths to insure against non-delivery.

Kingfisher, which owns the BQ home-improvement chain, is still in the black but its prospects look equally grim. The group is to close its Trade Depot business, which serves the now-moribund building trade, at a cost of £20 million.

Chief executive Ian Cheshire warned that consumer confidence has been badly shaken in recent months by the global financial turmoil and, with the UK now in recession, he sees no early recovery.

As the housing market has ground to a halt, demand for higher-ticket items, such as kitchens and bathrooms, has slumped. That was the undoing of MFI and is also behind the sales slide at BQ.

But all of this comes against the background of a widespread consumer slowdown, which is hurting even well-run retailers in more robust market segments.

Add in the banks' reluctance to extend credit, and it's a toxic mixture for the high street.

There is little doubt that many more retailers will suffer the same fate as MFI and Woolworths in the months ahead.

Some will be allowed by their banks to hang on until after Christmas when, hopefully, the tills will have rather more cash in them than they do now. Others will not make it through the next "quarter day" in January, when their rent payments fall due.

Although the demise of MFI and Woolworths was widely expected within the retail industry, the news still came as a shock. Analysts are bracing themselves for more to come.

"The eye of the storm has moved on from the banks to the retailers," said Keith Bowman at Hargreaves Lansdown.

Fiona Walsh writes for the Guardiannewspaper in London