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Retailers facing tough new year

UK fashion retailers can expect a tough start to 2008 as worsening economic conditions drive down consumer spending, delegates were told at this year’s Drapers Fashion summit.
HSBC retail analyst Paul Smiddy said Christmas would be average for the majority of retailers this year, adding that the spending slowdown was likely to continue into next year.

“Christmas will be OK for retailers, but no more than that. In January people will look at their credit card statements and say ‘this has to stop’, so spending will slow and then we will see further unpredictability,” he said.

Smiddy added that the poor summer and recent credit crunch sparked by difficulties in the US had put an abrupt end to a positive economic trading cycle. He also said that although house prices were expected to fall by 5% next year, it would be some time before consumers started to spend less on their mortgages and more on clothing and accessories. “The impact of a cut in interest rates will be far from immediate,” he said.

Smiddy added that Marks & Spencer and John Lewis were likely to weather the storm better than value retailers such as Matalan, and other middle-market fashion chains such as Gap.

“Matalan has been grinding to a halt, but M&S has made some good hires recently that have helped the business to react more quickly to market changes,” he said.

Smiddy added that the premium end of the clothing market would be more resilient to the slowdown than other retailers.

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