Wake up and smell the instant coffee

CHRISTMAS?2010 will be remembered as Britain’s last big spending splurge. What better way to end almost two decades of unsustainable, debt-fuelled largesse than with a massive turkey dinner and tonnes of presents? Supermarkets could barely believe it as families spent more than ever before on rich food and booze; John Lewis notched up record sales. “Austerity,” consumers muttered disbelievingly as they repeatedly tapped in their chip-and-pin code? “What austerity?”

Alas, it couldn’t last. As the New Year dawned, consumers woke up and smelled the coffee – and it was the cheap, freeze-dried stuff. Justin King, the J Sainsbury boss, spoke for most retailers when he said post-Christmas sales had fallen significantly.

It was always going to be like this. The only real surprise is that it took so long for the recession to catch up with retailers. Take J Sainsbury, which has notched up five consecutive years of growth in margins, sales and profits – despite the slump.?In 2007, pre-tax profits were £339m, rising to £434m in 2008, £519m in 2009 and £610m in 2010. There is simply no evidence of the worst recession in Britain’s peacetime history. Tesco tells a similar story, with profits rising from £2.653bn in 2007 to £2.803bn in 2008 and £2.917bn 2009. Again, the slump is nowhere to be seen.

Of course, some weaker rivals like Zavvi and Woolworths have fallen by the wayside, providing a fillip for others, especially the supermarkets. That has helped delay the day of reckoning for some, although consumers have also struggled to accept that the debt-fuelled game is up.

Hiding is no longer an option. Spiralling inflation stoked by higher commodity prices, hiked taxes, constrained consumer credit and fear over public sector cuts have combined to create a lethal brew. Yesterday’s retail sales might have been worst than expected, but things are going to get much, much uglier. The party on the high street is well and truly over.

david.crow@cityam.com