Why it’s far from a wonderful life for the British retail sector

Defying a considerable lobby for Alien Resurrection, playing next-door in the small Clapham multiplex, I took the children last weekend to see the monochrome and special-effectless It’s A Wonderful Life. Most of you, I hope, will recall that this features James Stewart as George Bailey, the munificent heir to a two-horse, middle-American town’s savings and loans company. Following the intervention of a guardian angel, who shows him what the town would have been without him, Bailey eschews suicide and is bailed out of bankruptcy by grateful townsfolk.

This sort of film was always meant to be a parable for our times. In the 40-odd years since the movie was made, the parable may have changed a bit. The American savings and loans network has been subject to corruption and fraud, collapse and cut-throat competition. A sequel to It’s A Wonderful Life might well have demonstrated that the townspeople’s whip-round amounted to an improper secondary financing, leading to a federal investigation, which in turn caused a run on property prices in Bedford Falls and ultimately a takeover on the basis of underwritten liabilities by the likes of Citibank or – given the record for folly – a British clearing bank such as Midland.

I appreciate that this is all rather curmudgeonly. ‘Tis, after all, the season to be jolly. But I suspect that British retailers have little cause to deck their halls with anything other than exhortations for the January sales, needing as they do a miracle of George Bailey proportions to deliver them a Christmas of trading cheer.

It’s difficult to find anyone to blame for what will be a tough time for many retailers, despite the usual seasonal claims that the shops are crammed to the fire exits. For once, Government policy isn’t the culprit – were we taken, by a guardian angel, to see what the scene would be like had the New Labour administration never been born, it would not look very different. The strength of sterling, inflated equity markets and the threat of a collapse in Asian markets are all matters beyond the mere tweaking of interest rates.

It is the global issues that will really hurt in the UK this Christmas. It’s difficult to imagine why South Korea, one of the mainstays of cheap manufacturing for the West, should be growing into such an ogre. But its central bank’s determination to intervene to pump whatever is required into trust and investment companies in the region to support the currency against a run is little more than a vastly magnified version of what Bedford Falls did for Bailey Building & Loans. If that lot collapses, then the cost to sterling exporters will be unquantifiable as a currencies chain reaction is triggered throughout the Far East, through to the US and into Europe. The pressure on the British domestic market to deliver by way of compensation is intolerable.

Growth in the British economy is likely to slow to some 1.9 per cent next year and stay close to that level in 1999, according to the Centre for Economics & Business Research this week. That can largely be accounted for by the Asian factor for British exporters. Add to that a strong pound, tax increases and higher interest rates biting next year and any feelgood factor in the economy is likely to be taken away gently by men in white coats.

The problem is exacerbated by a lack of industrial direction. Symptomatic of this is the uncertainty over whether shareholder value is to be found in demerger or conglomer ation. Take Coats Viyella, which this week outlines the potential for unbundling brands such as Jaeger, Dorma and, of course, Viyella. Following the demerging Burton’s example, we are told Coats Viyella could release well over 1bn through demerging its prime interests.

Meanwhile, it is timely that Guinness and Grand Metropolitan this week clear the final hurdle in the US for their 24bn merger. All they are required to do is sell the Dewar’s scotch and Bombay gin brands within six months. Coats Viyella and the company formerly known as GMG Brands (this column refuses to recognise the new name, due to its unmitigated awfulness) are highly dissimilar in many regards, but at the level of brand management they both have global reach. I would respectfully suggest that one of them is out of sync with the corporate growth cycle.

I have made only a passing reference to the feelgood factor and clearly consumer confidence, or lack of it, will play its part in the UK retail market this Christmas. Of course, consumers are notoriously resistant to macro-economic pressures. But my point is that there are sufficient pressures on British business – and lack of certainty over what to do about them – to make performance in the domestic market absolutely critical. In some cases, perform-ance in the UK this Christmas will have to defray the cost of doing business abroad, which has been so damaged by the price of sterling.

We’ll know the degree to which we have succeeded in this endeavour come the first swathe of retail results in the new year. My feeling is that the cold over the next fortnight will be nothing compared with the big chill during 1998. And, on that cheery note, have a happy Christmas.