Outlook: High street gets its wake-up call

THE DISMAL December retail sales figures bear a message about the economy and a message about retailing itself. They confirm - as if confirmation were needed - that the economy is slowing. Consumers, the driving force behind two-thirds of GDP, have become a great deal more cautious.

However, the broader outlook is not as bleak as prospects for retailing itself. The monthly consumer confidence survey by GfK, the polling company, revealed a modest improvement in consumer confidence this month, and all along has shown people to be far more upbeat about their personal finances than about the economy as a whole. This is consistent with a gentle downturn like the one in the mid-Eighties rather than a severe one like the early Nineties.

Yesterday's figures showed a slowdown in the growth of sales by value to the weakest since 1987, when the current records began. It reflected both weak volumes and lack of pricing power. There is no doubt that it is the latter, the disappearance of traditionally healthy margins, that is causing most anguish to retailers.

The British high street has to face up to a future as a low-growth or even declining industry. Part of its problem here is the over-expansion of floor space, a cyclical phenomenon that will eventually be corrected. More seriously, traditional shopping is accounting for a shrinking share of our spending. As the average consumer grows wealthier, more and more of the pound in his or her pocket is being spent on leisure activities such as eating out, cinema-going and the gym, and on services, from haircuts to gardening.

On top of that, from out of the blue has come the threat from non-traditional forms of shopping for traditional goods. Now that so many people have bought PCs and modems, on-line shopping is likely to grow at an explosive rate. Perhaps book-buying is the model: customers can still be persuaded out to a store. They don't all buy through Amazon.com yet. But they now expect the experience of a cafe - armchairs and amenable surroundings.

The strategies that have brought success to retailers in the past will work less well in these changing circumstances. The downturn will just hasten the pain. No wonder retailers have joined manufacturers as the most vociferous lobbyists for more interest-rate cuts.