Taking an axe to the retail sector

Tax increases and spending cuts are beginning to hit the sector hard. Yes, since the downturn first hit in 2008 many retailers have taken lots of medicine and reduced their terminal stock levels, cut costs, and now have a tighter than ever control on their inventory, but the fact is they face yet more problems ahead.

Austerity is no good for the retail sector and the economic backdrop suggests consumer spending is more likely to fall from this point on. So although the industry is in much better shape than it was pre-downturn in 2007 there is going to be some fall out.

In an extensive report this week broker KBC Peel Hunt concluded that market expectations are too optimistic and it expects there to be some cutting of forecasts from companies. Ahead of such action the broker has decided to take the axe to its forecasts for a number of key retailers.

Findel has been cut by 24%, Mothercare by 10%, Debenhams 9%, Next 6%, HMV 6% and Marks & Spencer. This broad sector downgrade follows its earlier reductions of 20% on Topps Tiles and 34% on Carpetright.

There is probably going to be a lot more such action across the sector over the next few weeks.