Embattled retailers set for yet more bad news

At the end of a week which saw electrical retailer Dixons issue its second profit warning this year, Oddbins go into administration and Mothercare and Laura Ashley both warn of tougher trading conditions, department store chain John Lewis' weekly sales figures brought little cheer.

Sales including VAT were down 3.8% on a year ago. Excluding VAT they fell by 5.7%.

Kate Calvert, analyst at Seymour Pierce said: "These numbers confirm that there appears to have been another step down in consumer demand in March, though the picture is unclear given comparables, and comes on the back of two major profit warnings in the sector this week from Dixons Retail and Mothercare."

Even fashion chain Next, which reported better than expected figures two weeks ago, said this year would be like "walking up the down escalator".

Next week sees the key post-Christmas trading update from Marks & Spencer. The City is braced for a sharp fall in non-food sales with analysts forecasts average a 6.2% decline in like-for-like revenues.

Howard Archer of IHS Global Insight said: "Consumers appear to be reining in their spending appreciably as their purchasing power is squeezed by high and rising inflation in tandem with ongoing, muted wage growth overall.

"Concerns over jobs, the economy and fiscal tightening increasingly kicking in are also weighing down consumer confidence and willingness to spend."

Official figures this week showed that families' disposable income fell annually last year for the first time in 30 years.

Calvert added: "All eyes will be on Marks & Spencer's fourth-quarter update next Wednesday and Halfords also reports its sales on Thursday.

"We expect the industry sales trend to improve in April. However, with further tax increases and benefit cuts to come in the new tax year, the outlook is set to remain tough; in particular for the apparel retailers which are also battling with cotton inflation."

The FT indices for food and drug retailers fell 1.2% in March and for general retailers by 0.7%.

But individual companies have suffered far worse with Dixons shares dropping 18% on the profit warning.

There are indications that pressure on the retail sector will have an increasing effect on other parts of the economy.

Russ Lidstone, chief executive of advertising agency Euro RSCG, says: "Sentiment seems to have changed in recent months. UK consumer confidence has taken a knock and this could lead to a double-dip recession.

"Inevitably this would put pressure on marketing budgets, particularly in areas of discretionary spending."