As we head towards summer it’s now clear that this will be a very difficult year for UK retail.

The combination of public sector cuts, tax increases, inflation, property market weakness and looming interest rate rises has hit consumer confidence, and retail sales are hurting.

The increased willingness of customers to shop online has also effectively expanded retail capacity, despite the economic environment.

In truth, this moment has been looming since Northern Rock in summer 2007. The pain has been delayed through deep interest rate cuts, but economists are now forecasting disposable incomes to fall 2% this year after a fall of 0.8% last year. Other reports indicate we are now experiencing the worst squeeze on household incomes for the last 30 years.

Retail sales in March were down 3.5% on a like-for-like basis, and industry analysts now expect like-for-likes to be negative for the foreseeable future. Further cost cuts will be essential to preserve profitability and cash.

So what does this mean for deal activity in the UK retail sector? There has been a healthy flow of retail acquisitions over the past 12 months - some at full valuations - as investors sought to position themselves for an expected consumer recovery.

But today that recovery looks some way off, and we would expect to see far fewer investments now predicated on timing the economic cycle. Instead, we expect to see an increase in underperforming retailers being sold, particularly by multidivisional companies that need to focus on their core businesses.

Of course, a decline in the overall market doesn’t preclude some businesses from growing by taking market share from weakened competitors. What it means is that investors and lenders will be more circumspect about opportunities premised on growth in the short term. Investors instead will be running the numbers on businesses that have likely suffered from underinvestment, insufficient management attention or structural changes in their markets.

They will need to take a view on business plans that show a profit recovery - every plan does - and assess the capital and time required to make that recovery more likely. And more than ever they will need deep operational expertise to evaluate the likelihood of success and to assist management teams in making that success a reality.

In 2008 we bought BUT, a French retailer of furniture and consumer electricals, and were able to identify an extensive programme of operational change to drive performance despite the ongoing recession. We invested in refurbishments, new stores and acquisitions. We then supported the management team in implementing operational change initiatives that resulted in significant outperformance.

In more buoyant markets, like-for-like sales growth was always the retailer’s Holy Grail. But, after decades of expansion and with consumers under extreme pressure, we are entering a new and more difficult period.

Investors will need different skills to those required in better times. A more hands-on approach will be the answer for many companies and their investors as they try to navigate what will be difficult times ahead.

Henry Jackson, Managing Partner, Opcapita.