More British shopkeepers likely to go to the wall

London: Christmas trading in Britain was not the disaster many analysts had predicted, but with the recession deepening and sterling weak, more retailers are likely to go to the wall in 2009.

The back end of 2008 and the early weeks of this year have seen the collapse of a raft of major UK retailers, including Woolworths, MFI, Zavvi and Viyella, and experts predict more will follow in the coming months.

"There's going to be a constant stream of smaller ones going down and I find it difficult to believe that all of the major names will survive intact without going through some form of process," said Nick Hood, partner at insolvency specialists Begbies Traynor.

"I can't see any light at the end of the tunnel before the second half of 2010."

Hood said a critical situation has been made worse by the reluctance of banks to commit additional funding to support struggling retailers.

Those in discretionary, big ticket, areas, such as large electrical items and furniture, as well as those with poorly developed Internet offerings, are seen as most vulnerable, particularly if they are carrying a high-debt burden.

The next critical date for UK retail failures is likely to be at the end of March when the second quarter's rent is due.

After this the pinch point will probably come in September and October when the majority of retailers have their most adverse cash position of the year, having committed to stock for the key Christmas season.

"Banks are considering their positions at the moment and there will be a number of reviews and investigations from reporting accountants just to see how serious the position is," said David Bush, head of retail services at advisors Grant Thornton.

"In many cases it will be a question of restructuring debt and re-setting banking covenants rather than going straight to corporate failure."

The FTSE UK all-share general retailers index has outperformed the overall market by about nine per cent in the past month, reflecting relief over holiday trading, which benefited from a late surge and a strong post-Christmas sales period.

The trend that has emerged has been one of food and discount chains coping in the economic downturn but sellers of discretionary items suffering.

Falling food, fuel and energy prices along with reduced mortgage interest charges will provide consumers with some relief this year.

But soaring unemployment and fear of unemployment, sliding house prices and an increased savings rate look set to continue to restrain spending, increasing the pressure on the weaker players.

Sterling's 29 per cent depreciation versus the US dollar over the last six months will also be a major issue for the UK retail sector in 2009, as a major proportion of non-food products supplied to British stores are sourced from Asia and priced in US dollars.

A weaker pound makes these goods more expensive, putting downward pressure on profit margins.