Retailers' mega squeeze
Good and bad news from HMV this morning.
It now expects profits for the current year to be even less than feared a few weeks ago: around £30m, down from £69m last year.
As for its market value, that is less than last year's pre-tax profits, at £65m. Or to put it another way, its 15p share price is an option that maybe it won't go bust.
In respect of its life-or-death negotiations with bank lenders, led by Royal Bank of Scotland and Lloyds, HMV says there is better news.
It has in effect gained another couple of months to secure a new borrowing agreement with the banks, because there has been a two-month extension to 2 July for the date at which its breach of its borrowing covenants will become a formal reality.
Anyway, you probably don't need telling that 2011 is shaping up into the worst period for retailers since the onset of the 2008-9 Great Recession, when Woolworths and Zavvi went kaput.
Just this week, Oddbins - the wine retailer - went into administration. Next has already spelled out the serious challenges ahead (though it still expects to grow profits marginally). And tomorrow Marks & Spencer will warn that the outlook is tough.
Back when the economy fell off that cliff in late 2008, retailers were bailed out by the massive injection of cash into consumers' pockets, when the Bank of England slashed interest rates to record lows and created new money on an unprecedented scale.
Coupled with a cut in VAT, millions of households received a boost to their disposable income. Although wages were flat, consumers suffered nothing like the peak-to-trough 6% per cent reduction in annual UK output or GDP.
Funnily enough, this year could feel much more like a recession for households, even though in terms of headline GDP the economy may continue to grow (albeit very insipidly).
The big weight is £1.5 trillion of household debt, which remains close to a record in respect of its relationship to disposable income. That £1.5 trillion is equivalent to around 150% of gross household disposable income, which is considerably greater than it has ever been (except in the last five years).
Back in 2000, after eight years of consistent and significant increases in consumer spending, the ratio of household debt to disposal income reached what was for then a very significant new high of 100%. But as a nation of shopping and housebuying addicts, we kept on borrowing.
That said, households have been saving a bit more since the economic shock of three years ago, and following their net dissaving of the boom years. But our slightly improved propensity to save has not been enough to make any serious inroads into that mountain of borrowing.
So households face a huge squeeze on their spending power this year - which means that weaker retailers face a horrendous time.
The quintuple whammy, so to speak, is of sterling oil and fuel prices at record levels, cotton prices that have surged, food prices that are rising, VAT that has already gone up and interest rates that are expected to rise this year.
When you combine all that with unemployment that is high and expected to rise a bit more, and salaries that are rising at no more than 2% to 3% on average - or half the rate of headline inflation - then you can see why so many of us expect to feel poorer in 2011.
Who has the greatest power over our sense of prosperity and the plight of our shopkeepers? Probably the monetary policy committee of the Bank of England.
As the Bank of England has itself pointed out, the sheer size of all that household debt means that it doesn't take a very significant rise in interest rates by historical standards for households' available cash to be squeezed to the parlous levels that took the UK into recession 20 years ago.