North and south

I spent far too much of my life writing investment research. Now I am in the much more relaxing position of being a reader of it. However, my repose is disturbed by the language which much of it uses. There has been a broad descent into the largely American-inspired management jargon and claptrap of the sort that would give the business writer Lucy Kellaway nightmares. It is a pity one cannot vent frustration by flinging a page on a PC screen across the room—a book or journal is so much more satisfying in that sense!

So, to share some recent research with you. Thankfully, this was not written; this was a presentation I attended a couple of weeks ago, where one of the speakers was an economist from one of our major banks, which had better remain anonymous. Well, it had monarchic and Caledonian connotations.

He was remarkably sanguine about the UK's economic outlook, and expected GDP and retail sales growth of 2% this year. My view is that a national average of 2% may be optimistic. He assumes that the proportion of income that UK households save will remain constant. The risk is that households see sense, and reduce their net debt ahead of the time when interest rates must inevitably rise. Less debt or more savings mean less consumer spending.

There was a hint that he agreed with what I have felt strongly for some time—that fortunes in the UK this year will vary wildly by region and town, depending on the level of overdependence on public sector jobs, which are finally starting to feel the chill economic wind.

A partner from one of the leading surveying firms echoed this point, but from a different perspective. There will be a big bubble of shop leases expiring in the next two or three years. In the face of subdued overall consumer demand, retailers will have to be ruthless in chopping out under-performing stores. So in secondary towns the number of vacant units will increase, and the town's attraction to consumers will diminish further. Thus the North/South divide will widen.
Looking for a silver lining to this very dark cloud, it does mean that remaining retailers should be well placed in their own lease negotiations. Because the property development industry has all the agility of a supertanker, there has been a rapid shift from feast to famine: there will be no new shopping centres opening in 2012, and only one in 2013 (in Leeds).
For the retailers still in expansion mode (largely fashion, many foreign), this creates a bit of a headache, and will mean that rents on the best sites will continue to see upward pressure.

So the message is—with as little management jargon as I can manage—that the UK retail scene will become even more polarised over the next couple of years.