Structural slump in retail

Online sales, a shift to spending more on leisure and travel, and 'a difficult winter' are being blamed for the poor Christmas trading figures which have come out from major high street brands this week. Not only in the UK, where Next reported low sales and cut it's guidance on expected profit for the year, but also across the US retail markets, where Sear's, Macy's and Barnes and Noble have also reported bad trading over Christmas.

Lord Wolfson, Next's CEO, has blamed a cyclical downturn in clothing sales and a 'structural shift' in retailing. The British Retail Consortium have reported that clothing prices are down by 5.7% compared with last December, at the same time as the cost of importing clothing from overseas manufacturers is rising due to the fall in the value of sterling. So UK retailers profit margins are squeezed from both sides, just as the high streets face ever more threat from low-cost online sellers. The evidence is strengthened by Ipsos Retail Performance data that shows the high streets were quieter in December than at any time since they started collecting data in 1998.

As a retailer, would you choose to allow profit margins to erode further, or to put up prices and risk losing market share?