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TWST: What is the outlook for the sector over the next 18-24 months? What themes do you think will be important?

Mr. Shiret: The different geographic and product markets tend to be driven by different types of themes. The structural status of the various markets is different; particularly the UK market which has got a much higher degree of multiple ownership of retail assets, whereas non-UK Europe, particularly in the clothing sector of the market, is dominated by independent and legacy type retailers like department stores and home shopping. So there is differing scope for multiply owned companies, i.e. the big quoted ones, to increase their physical penetration. Looking at overall demand growth, one might expect that the countries where there’s been some relaxation of fiscal policy like Germany, Italy, France should begin to see some improvement in demand; again, in the very near term you have some potential impacts on consumer confidence from a variety of things, from increased in

TWST: How is US dollar strength impacting the sector?

Mr. Shiret: The strength of the US dollar is basically pushing up input prices in both Europe and in the UK now, so that means that increased prices will have to be passed on, and there’s already some evidence that this is causing a slowdown of sales growth. The position in the UK is slightly different in that there has been quite severe price deflation for some time, which has been very difficult to manage, and some sort of reduction in price deflation is going to make it a lot easier to manage retail companies in the UK. In Europe, we haven’t seen very much evidence of this swing around in buying terms to date, because a lot of the retailers will have been hedged in from a period which was less volatile in terms of currency relationships, so we’re only beginning to see the beginnings of the effects at the moment.

TWST: What are they going to demerge exactly?

Mr. Shiret: They’re demerging their electrical and DIY divisions away from their general merchandise division, which is predominantly a UK-based operation, which is under some pressure from food retailers in the UK. But there are others trying to consolidate. Dixons, the number one UK electrical retailer, has bought the number one Scandinavian electrical retailer, Elkjöp, and has got a few small interests in southern Europe, but you would expect them to be a potential buyer of any substantial German or French interests.

TWST: Let’s pull all that together and come up with a sector recommendation: what are you advising your institutional clients vis-à-vis the European retail sector? How should they approach it?

Mr. Shiret: I think in the UK I’m advising them generally to wait until after we get through the Christmas trading period, because I think there’s a volatility in demand which is likely to cause forecasts to come under pressure. And next year, as you’ve said previously, sterling is more favourable for UK retailers, and also the interest rate outlook is more favourable. So you might buy into that once you have a firmer idea on actual delivery of figures over the important Christmas trading period; so that’s a wait and see type of recommendation for the sector.