Forget autumn, the high street is already dreading Christmas

Several companies revealed last week that they were experiencing tough trading and warned that they expected little let-up in the coming months. Philip Green's Bhs reported a 3 per cent slide in underlying sales in the year to April, and a near 6 per cent fall in operating profits, to £105m. Crucially, the department store chain warned: "The middle market continues to be challenging, turnover being down 4 per cent [in the] year to date."

Further bad news came from GUS, owner of Argos and Homebase; from Burberry, the luxury brand still majority owned by GUS; and from JJB Sports. Boots, Next and DSG Group, the renamed Dixons, have added to the gloom over the past month.

Not all the news was bad, and some of the best came, surprisingly, from Marks & Spencer. Its chief executive, Stuart Rose, no doubt revelling in the timing, revealed the first rise in underlying sales for two years. Shares jumped, surging towards the 400p level at which Mr Green had attempted to buy M&S just over a year ago.

Others with buoyant updates included two other recovery plays, J Sainsbury and WH Smith, and also Carphone Warehouse.

But the general consensus is that the bad is outweighing the good, with even experienced operators edgy. Mr Rose has urged investors to judge the retailer on its performance in three months' time, while Allan Leighton, a former Asda boss, who these days is Bhs chairman and deputy chairman of Selfridges, says: "There's definitely a slowdown and people know it. Then there's the weather - we're not allowed to blame that, but it hasn't helped and Christmas will be a crucial time. I know everyone always says 'this Christmas is more important', but it really is. I'm not nervous - but I am cautious."

"It's been a pretty torrid time for most retailers," agrees Kevin Hawkins, the director general of the British Retail Consortium. "Interest rate increases [have] started to bite. The tax burden has risen, we have a big fall in mortgage equity withdrawal and higher energy costs.

"It all adds up to a pretty tight squeeze on household spending, and when people feel hard up, they don't spend. Why look for a complicated explanation when there's a simple one on hand?" Add in the growing popularity of internet shopping, and the high street's concerns become even more understandable.

Christmas is the most important season in retail's calendar, with some sectors delivering as much as 60 per cent of annual sales during the fourth quarter. These include jewellery, books and music, toys, toiletries, accessories and, of course, gifts. It is also a vital period for fashion sales as people not only buy clothes as gifts but treat themselves to new outfits for the party season.

The one sector that does not rely so heavily on Christmas is DIY. Its biggest peak is Easter - all those bank holidays. Yet DIY goods are still bought as presents, or to get the spare room finished before the in-laws come to stay, and the fear is that this year will buck the trend. "The DIY chains are definitely going to be the losers for the next six months," predicts Jonathan Pitkanen, retail director at analysts Fitch. "Things have been really tough and are likely to get tougher as they go into a price war with each other."

Electricals is another sector that, like DIY, has had a rocky year and will be dreading Christmas. People snapped up flat-screen televisions, DVDs and various other electrical goodies during the consumer boom - and promptly stopped buying them when spending cooled.

Fashion, meanwhile, is tough to call. Most are hoping that M&S - helped by an advertising campaign featuring Twiggy, the comedian Jimmy Carr and Seventies rock band ELO - will continue to perform well. As one fund manager says: "The press coverage M&S has got will make a difference - if people are being told it's OK to shop there again, then they will." (It won't hurt either that shoppers like to splash out on edible treats come Christmas, an area where M&S and Waitrose lead the way.)

Next is likely to be a different story. Its chief executive, Simon Wolfson, has already complained of tough conditions and few are predicting a buoyant Christmas. This is arguably because its offer - more expensive than the cheap, cheerful and extremely popular ranges of Topshop and Primark - has failed to capture the imagination.

"The company seems to have ignored key autumn-winter trends, such as the Russian and military looks," notes Chiara Terzaghi, a JP Morgan analyst. "On the contrary, these are footfall drivers at M&S, as emphasised in the television ad."

And when it comes to fashion, this is what it's all about. Even Mr Green, never one to knowingly admit to being wrong, was reported last week as saying: "In ladieswear, we have some work to do. People want more fashion. In every demographic, people want fashion."

The one thing Next investors have in their favour is that the chain never goes on sale early. So while it may end up with stock to shift, it should protect its margins. Not so its rivals. Last Christmas, several began their sales before Christmas, sending out the wrong message to the buying public.

"Retailers have been the architects of their problems in this respect," argues Richard Hyman, the chairman of retail research agency Verdict. "More and more people delay [Christmas shopping] and have been encouraged to because retailers have taught the consumer they will drop their prices if they wait it out. That really alienates shoppers. There's nothing worse than seeing stuff you bought a week ago now available for 30 per cent less."

And when one retailer goes on sale, a domino effect can occur. Because while having a sale may dent margins, not having one will see customers go next door where they can get the same product cheaper.

This year, though, it won't just be early sales giving away bad trading: some are concerned there could be a flurry of profit warnings. "The whole sector is going to get itself into a real lather and I can see some profit warnings in the second week of December," comments Fitch's Mr Pitkanen.

So what can retailers do? Certainly there will be no outside help, with economists predicting no more rate cuts this year.

Instead, it's going to be a balancing act and a game of nerve. "Christmas doesn't look good," says the BRC's Mr Hawkins, "and I don't think anybody is pretending it's going to be anything other than tough. Trying to guess what the big hits are going to be, and making sure your stock near as damn it mirrors demand, is a fine art. And when your consumer is cautious, and you have a whole week of trading before Christmas Day [which falls on a Sunday this year], then it becomes particularly tough. You need skill - and a bit of luck."

The one thing no one can account for, though, is the consumer. For all the pessimism, people could yet rise to the festive challenge, deciding after a lean spell to splurge on food, presents and the home. And because last Christmas was so dire, sales are likely to look better in comparison. Soft comparatives, though, are just that, and will not tell the true story. It will be in January, when retailers reveal what happened - what the sales were, and what the profits will be - that judgements will be made.

Yet while retailers and investors hold their breaths, some are taking a far more relaxed view. After all, not everyone is likely to perform badly. Tesco - yes, it had to be mentioned at some point - is expected to shine, while other new entrants, be they the Apple store on Regent Street in central London, or the US fashion chain Urban Outfitters, are also expected to perform well.

James Brown, the head of retail research at property group Donaldsons, says a growing number of companies are either defaulting on loan repayments or renegotiating terms. But that, he points out, is simply the competitive world of retail.

"The consumer spending boom carried a whole heap of retailers who weren't going to be in it for the long term. Those that are going bust are not really a surprise to us. It's just market forces clearing out the sub-optimal retailers." The fear on the high street is that another poor Christmas will see that "clear out" gather speed.

WHO WILL CATCH A CHILL THIS YEAR?

Likely losers

Sectors: sportswear, books and music (as the internet continues to dent market share), DIY goods, big-ticket electrical items, furniture, town centre department stores, London's Oxford Street.

Retailers: Next, JJB Sports, Matalan, Boots, Bhs, John Lewis, B&Q, Homebase, DSG Group and House of Fraser.

Likely winners

Sectors: suits, cheap and cheerful fashion, high-end food and drink, niche department stores, out-of-town shopping centres, the internet.

Retailers: J Sainsbury, Marks & Spencer, Primark, Arcadia, Waitrose, Asda, Selfridges, Debenhams, and Woolworths - if it predicts the big Christmas "must-have" presents.