Retail hit by excess space, rising costs

LONDON (Reuters) - Excess selling space and rising costs have combined with the economic downturn to hit returns in the retail industry and more store groups could go out of business, consultants Deloitte said on Thursday.

Retail sales per square foot have fallen to around 355 pounds this year, down from their 2007 peak of about 385 pounds and the lowest level since 2001, Deloitte said.

While partly due to the recession, this was also linked to rapid expansion during the boom times.

Deloitte estimates the retail industry added more than 50 million square feet of selling space over the past 10 years and that rapid growth in online shopping has added the equivalent of a similar amount.

"This level of expansion has until recently been absorbed by a golden period of retail spending growth," said Richard Hyman, strategic retail adviser to Deloitte.

"This period is over, and does not look likely to return for some time."

Deloitte also estimated cost growth has outpaced sales growth at retailers over each of the past three years and that this trend will become even more pronounced this year.

Costs are set to rise around 5 percent this year, while sales will fall about 3 percent, Deloitte forecast.

Hyman was surprised more retailers had not followed the likes of toys-to-DVDs chain Woolworths out of business, and attributed this in part to various forms of protection from creditors that had given firms breathing space.