No offence to Beales, but it’s come to something when it’s capitalised at three times as much as the two quoted sofa retailers.

The point, though, is that none of them are worth very much and that’s become the story of the retail sector, to a degree that has surprised some of the most bearish investors.

Destruction of value continued apace this week, powered by Marks & Spencer’s pre-emptive disclosure of awful numbers on Wednesday. As it sneezed – or, rather, took to its bed looking green at the gills – the whole sector was infected. Next, Debenhams and other big names were downgraded and analysts warned that, even after this latest bonfire of forecasts, the sector could yet plunge to new lows yet.

As if selling conditions are not bad enough, gross margins will come under even more pressure as inflation builds. JP Morgan has just published a hefty piece of research on the subject and there is nought for comfort. Raw material and transport price increases, reduced export subsidies and double-digit labour cost inflation in important sourcing locations are among the clouds on the horizon.

The broker reckons hedging and forward buying will cushion the impact this year, but that the full force will be felt in 2009. And UK store groups will be worse hit than their continental counterparts. Furniture, clothing, home and jewellery retailers face the biggest headache, because of raw material, labour and transport costs.

As he posted prelims on Tuesday, Carpetright founder Lord Harris said that trading conditions are among the worst he has known in his 50-year career. Few in the industry have his depth of experience and many in retail’s boardrooms have never traded through genuinely tough times. Every day brings more bad news from big-name companies. Just how low can the retail sector’s rating go? Probably a bit more yet.

Home and dry?

Value home specialist Dunelm has not escaped the savage de-rating of the sector, but is one of the few retailers that features on many buy lists. Its low average transaction value and tight cost structure are among the reasons why its City fans like it and, so far, it has weathered difficult times well.

The retailer updates next week, which is likely to provide further insight into consumer dynamics and the extent of any flight to value.

George MacDonald is deputy editor of Retail Week

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