A week after Woolworths closed its 200 stores, there is some good news as Iceland the frozen food retailer has announced that it has bought 51 of Woolworths stores. This move will create 2,500 jobs.

Woolworths closed 815 of its stores last week. The purchase of the 51 stores represents a small percentage of Woolworths’ remaining assets but the promise of new jobs being created is great news for the ailing economy. It is a symbolic move as well because surely the only retailers to prosper during a recession will be low cost retailers such as Iceland. Iceland and shops of their ilk represent how the new recession-era British high street will look.

The face of the high street is set to irrevocably change. The hardest hit high streets will be those in so-called clone towns. As the name suggests, clone towns are those with a proliferation of chain-stores and lack specialist shops such as butchers and fish mongers as well as independently run shops. They look like a hundred other high streets and lack any unique character.

A good example of a clone town is Wimbledon. Wimbledon is of course famous for tennis but it has the dubious honour of being named as Britain’s most cloned town centre in a 2005 report from the New Economics Foundation (NEF). Wimbledon’s Local Guardian reports that the recession could turn Wimbledon into a ghost town. The research group, Experian predicts that one in 10 high street stores across the country will lie empty by the end of the month. If a high street is predominantly made up of these chain shops, many premises could be vacated leading to a situation that the Wimbledon Local Guardian predicts.

Look at this sad sight. The once full and bursting shelves of Woolworths are now barren. Where once there was stationery, home wares, lurid kids clothes and bad CDs now there is nothing. As in retail all things must return to dust.

The picture was taken in Camden Town today. Give it a month the branch will be taken over by a Star Bucks, All Saints or American Apparell, any one of those ubiquitous high street shops.

Today Woolworths is finally closing down. The beleaguered high street chain was unable to find itself a buyer despite being taken into administration by Deloitte. The process of selling off its assets and its stock has begun with its closing down sale. The sale is offering 50% off on the price of goods.

The high street has seen many similar price fluctuations in the run up to Christmas. As part of the financial stimulus package, Gordon Brown announced that there would be a reduction in VAT from 17.5% to a historic low of 15%, cutting prices across the board. Even before December the 1st, Amazon, Currys, Dixons and Argos all reduced their VAT to 15%.

The reduction in VAT is designed to encourage consumers to keep spending. The aim of continued spending is to keep the economy healthy. Reducing VAT is a courageous move but there are some high level voices of dissent. The German finance minister, Peer Steinbruck criticised the government’s move in an interview with Newsweek.

‘Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90?’ he said.

‘All this will do is raise Britain’s debt to a level that will take a whole generation to work off.’

Peer Steinbruck may be correct in his assessment. A slight reduction in VAT may not be enough to encourage cash-strapped consumers to hit the shops. And retailers may not even pass this discount on to their customers. In fact there are some manufacturers preparing to raise their prices in the run up to Christmas which will surely impact the price in the shops.

Sony, the consumer electronics giant has announced that it is planning to raise its prices by a whopping 33%. Sony is trying to compensate for a weakening Stirling by increasing prices. A Sony spokesman told the Telegraph newspaper:

‘Sony UK can confirm that in the past 48 hours it has communicated to its trade channel that due to adverse changes in the Yen/Euro & Euro/Pound exchange rate over the last six months, and with this uncertainty set to continue into 2009, Sony will increase the trade price of a number of products over the coming months.’

‘The precise level of price increases has not yet been agreed, but it is likely that the vast majority of products affected will see increases of significantly less than 33 per cent. As these testing trading conditions continue, Sony does not believe that it will be alone in taking this form of action.’

Sony is the company behind the must have gifts this Christmas such as the Play Station 3, PSP, Bravia TVs, Cyber Shot cameras and MP3 players.  These are the items at the top of most Christmas lists.  An increase in these sorts of items will have a massive impact on the cost of Christmas for many families.

There is a schizophrenic situation on the high street. There are massive discounts to be found as with Woolworths. Many shops are offering pre-Christmas sales. Yet there are companies like Sony who are actively trying to increase their prices of their products. With the decrease in the pound against the Euro, prices of European imports are also bound to rise.

The question remains whether it is the retailers or the consumers that will absorb the price increases? To what length will retailers go to encourage people to keep on spending? Are retailers prepared to actively lose money or will there be a point where they are simply forced by the rules of economics to raise their prices?

The case of Amazon, Currys, Dixons and Play’s reaction to the VAT reduction may be indicative of how retailers may respond if manufacturers insist on price hikes. These companies were willing to implement the VAT changes before they were actually obliged. This shows their determination to attract people to buy from them even if it represents a needless loss in revenue.

However Woolworths is still a sobering reminder of what may happen if retailers ignore economic realities. Although it is not in their interest to raise prices and alienate consumers, retailers may be forced to simply to the avoid the indignity of being carved up and having their stock flogged for half the price.

What if prices do increase?

If the price of high-end electronics increases as with the case of Sony, many people may not be able to afford indispensible electronic items. Luckily most retailers offer finance schemes. Instead of paying for an item upfront, a customer can pay for the item over a period of time with regular payments of a manageable sum.

On top of the regular payments those on a finance scheme also pay interest which is a percentage of the loan amount. Most retailers offer such schemes but the best deals can always be found online.

Dixons

Dixons has a flexible finance scheme which means you can buy now and pay June 2009. This is applicable for all purchases over £599. All you need is 10% deposit and pay nothing till June. There is a typical APR of 29.5%.

Currys

Currys offers finance on all products over £115.

Dragons’ Den Theo Paphitis has withdrawn his bid to take over parts of the ailing high street retailer.  Woolworths is currently in administration by consulting firm Deloitte. Although Woolworths has collapsed, lucrative parts of the business still remain an attractive proposition for investors. Potential investors’ interest focus on Woolworth’s high street stores and its CD and DVD distribution business, Entertainment UK.

With Paphitis’ withdrawal, a rescue package for Woolworths seems less likely. However Neville Kahn from Deloitte remains confident of a Woolworth’s sale saying they have received ‘substantial expressions of interest’.

The Times

Woolworths has been a staple on the British high street for almost 100 years even though it started life as an American import. The first UK branch was opened in Liverpool in 1909. The main problem with Woolworths in recent years is that it lacked a specific brand identity: as a cut-price retailer it was undercut by the supermarkets and £1 shops and as a seller of CDs, DVDs, home wares and toys it was out performed by specialist retailers like HMV, Waterstones or Toy R Us. It became a jack of all trades and a master of none. The only reason people went to Woolworths was to nick pick n’ mix and buy really small cans of coke.

Typically Woolworths made 80% of its yearly profits in the run up to Christmas, now with the British economy in the doldrums, the high street is suffering. With Woolworths’ business model in such a precarious state, all it has taken is one bad year for it to go to the wall.

Woolworths might still prevail now it is in the hands of administrators. The BBC is interested in acquiring  Its DVD  and CD distribution business while Hilco a specialist restricting firm are looking at options for taking over the day to day management of the branches.

The failure of Woolworths may precipitate a price war as the administrators, desperate to claw back some money, sell off Woolworths’ stock in massively discounted sales.  This would force other retailers to reduce their prices which may affect their own profitability during the festive period. Instead of being an isolated event, the failure of Woolworths might have a domino effect on the British economy affecting jobs and businesses alike.