Retail therapy back on couch

BUSINESSES hoping for a little shopping therapy to cure the stock market blues look as if they are going to be disappointed.

For the second month in a row High Street sales have dropped and the year-on-year growth rate is now down to its lowest level since January 2001.

The High Street will no doubt come up with all manner of excuses for this downturn. The World Cup, the Jubilee and the weather are all favoured excuses. But the reality is that economic uncertainty makes people cautious and the shopping and credit boom is cooling.

The one area of the market to buck the trend in June was clothing and shoes, where volumes jumped by 2%. But there was a great deal of running on the spot for many of the fashion chains.

High sales were achieved by heavy discounting with price declines of 6.2% in June as against 4.6% in May. Deflation in the retail sector is currently running at record levels.

This story is very much in line with the trading statements seen in recent days from a series of retailers including Debenhams, Boots and MFI - all of whom have dampened expectations. Some retailers, notably clothing market leader Marks & Spencer, are capable of bucking the trend.

The general slackness on the High Street and falling prices should be good news for everyone who has taken on a big mortgage in these days of booming house prices or has allowed credit card debt to build up. The odds are shifting away from an early rise in Bank of England interest rates.

In fact, this is just what the Bank and the government wanted to happen. A cooler consumer sector of the economy is meant to create room for a manufacturing recovery-and greater public spending. With underlying inflation running at just 1.5% and business confidence shot through as a result of the stock market meltdown, there is no reason - other than a falling pound - to think about higher interest rates.

The challenge for policymakers now is to keep growth going, not to suppress it. No-one wants Britain - or, for that matter, the United States - to encounter deflation in the 1990s Japanese model.

Grimsey tidings

THE magic touch which Bill Grimsey found at Wickes appears to have deserted him at the Big Food Group. Grimsey has spent so much time seeking to secure the former Iceland group's balance sheet - including a court fight with pensioners - that he has forgotten that shopping is all about getting people into the stores.

Having declared that the regime of his founder predecessor Malcolm Walker had got its marketing all wrong by adopting a distinctive 'organic food' strategy, Grimsey and his team have failed - so far - to find anything to put in its place. They have gone backwards and forwards trying various models, including Asda's everyday low prices and the more traditional Iceland buy-one-get-one-free. So far none of this appears to have found much traction.

But what really disturbs the market is that Grimsey was slow to see this coming and had to rush out a profits warning which sent the shares into freefall. All of this is a bit reminiscent of events under the previous regime.

Still, while shareholders have seen an 80% loss of value in Iceland, Grimsey and his finance director Bill Hoskins can comfort themselves with the knowledge that they have already collected bonuses - for all their hard work last year in cleaning up the debris - even if they have made little impact on the underlying business.

Refurbishments and baseball caps, of the kind Grimsey favoured at Wickes, could eventually do the trick. But one wonders if the bankers and shareholders will wait that long.

Halifax hurrah

MANAGEMENT makes its own luck and HBOS chief executive James Crosby has a great deal going for him at present. The results from the fifth force in British banking are extraordinarily healthy given the troubles being seen elsewhere in finance.

Remarkably, so far there are no Enrons among its borrowers and other than difficulties at St James's Place - its upmarket insurance offshoot - HBOS's insurance and fund management activities are more than holding their own. Investors will be relieved to know that it has brought down its equity holdings to 52% of the portfolio, limiting downside risk.

Where HBOS has a real marketing advantage over the Big Four is with its offer of interest rates on current accounts. This has attracted an influx of higher net worth customers and it now has a 20% share of the switching and new customer market. This is not a happy statistic for HSBC, Barclays, Lloyds TSB and RBS. The shares are worth the chunky 10% jump.