Recession, what recession? In the paranoia of the past few months, with soundbites to the effect of “trading is the worst I can ever remember”, many retailers are suffering memory loss and are in denial about the realities of retail life.

Add to this a new generation of retailers that do not know what a recession is and need to understand that product price inflation can be good for retail profits and you have a recipe for everyone behaving like the proverbial lemmings.

Total retail sales are still growing, despite the weather and early Easter. A recession (two successive quarters of negative growth) remains no more than a small risk – particularly since politicians are running scared.

We are experiencing a healthy correction following a period of unsustainable growth, fuelled by excessive debt financing. The growth in retail sales cannot exceed the overall growth in the economy forever.

In a tougher, more realistic environment, good, competitively priced merchandise will still sell. Too many retailers have only themselves to blame, selling poor-quality, undifferentiated merchandise and responding to the good years by overexpanding massively.

At the painful end of this spectrum are clothing retailers. “Fashion” retailing has enjoyed a golden decade since 1996. A volume explosion has been more than matched by a space explosion – the proliferation of formats (value players, supermarkets), new entrants, such as Zara, and much bigger stores.

The return to reality in this sector is especially painful and it is clothing retailers that are most vocal in terms of media “share of voice”, setting the tone for the whole trade.

Among all this self-pitying angst, the most refreshing thing I’ve heard was from Mothercare chief executive Ben Gordon, who is getting rid of space – down 5 per cent overall last year.

Another retailer still enjoying strong growth is JD Sports, where “performance has been very strong, as a result of management’s consistent strategy over the past four years of eliminating underperforming stores”.

This process, which I term reverse cannibalisation, is the most potent driver of retail profitability. Ask Sir Stuart Rose what drove profits at Arcadia – his inheritance of John Hoerner’s space-optimisation programme.

Remember what saved Ratners and Next from going under in the last recession in the early 1990s. In contrast, Next added 7.8 per cent of space last year and plans 400,000 sq ft this year.

As the internet leeches sales from stores and the latter become showrooms-cum-collection points, the space issue becomes ever more critical.

Landlords seem more out of touch with reality than many retailers. Rents must be set to fall, as retailers safeguard future health by exiting unprofitable space – starting with DSGi, which probably needs to get rid of at least 3 million sq ft to survive. Best Buy is spoilt for choice.

Fool, if you think it’s over.

If you have any comment to make on this story, click here.