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High street shake-out

Woolworths has gone, many other famous stores will disappear, but a new age of shopping will emerge

Traditionally it is the days and weeks after Christmas that are the most terrifying for retailers. The final quarter of the year arrives when rents have to be paid (this year, it is actually on 25 December), the invoices from suppliers pile up, a visit from the VAT man is imminent and the banks start to get antsy about the swelling overdrafts and feeble cash flow. Within days, the corporate undertakers come knocking.

This year the pattern has been different. Amid the carnage of the credit crunch, no one is taking any chances. Even if you are a company such as Woolworths - which takes in 80 per cent of its income in the six weeks leading up to Christmas - impatience sets in. The first thing to go is the credit insurance, the guarantee to suppliers that they will be paid, come hell or high water. When that happens, the sweet factory demands cash for each shipment of pick'n'mix and banks start becoming nervous. Before the directors have a chance to take emergency action, such as selling off a string of stores to rivals, the plug has been pulled.

The demise of Woolworths, a fixture on Britain's high streets for a century, is not that surprising. Its elder sister in the United States died some years ago and its falling share price has been signalling disaster for some time. But Woolworths is far from being alone. Among the reasons that Alistair Darling chose to make a 2.5 per cent cut in VAT the centrepiece of his pre-Budget report is that it has two important characteristics. Unlike an income or corporation tax, it can be administered swiftly - without the need for a complex finance bill. Second, it does help the consumer and the high street.

The sceptics have argued that a few pence or pounds off prices as a result of lowering VAT makes no difference in a year when Marks & Spencer is conducting guerrilla sales tactics ("20 per cent off" days, designed to catch the opposition on the hop) and other high-street chains are permanently holding sales.

Such observations are economically illiterate: by hook or by crook the cut in VAT will put £12bn into the economy over a relatively short period. Even if the price cut is not passed on, it will mean that smaller high-street boutiques may be able to hang on a little longer (by widening profit margins) allowing them to main tain a job or two that might have been shed in recession conditions.

What is different about the present crisis on the high street, which has seen the demise of Woolworths, MFI, MK One, as well as a slump in the shares of DSG (owner of Currys, PC World and the online Dixons site), is that it reflects changes in retailing and the way we shop.

It is no coincidence that the Woolworths on my local high street in south-west London had already closed by the time the administrators moved in and the premises were being refitted as a Tesco Extra.

The boundaries between shopping chains have changed. When Tesco reached saturation point in food sales, at the point where it became subject to regular competition and monopoly investigations, it headed in the direction of diversification. No longer is it just a grocer. It is a newsagent (watch out W H Smith), a clothing retailer (be careful Debenhams), an electronics outfit (no wonder Currys is hurting) and has moved into the video entertainment business (poor old Woolies). Tesco, the dominant force in British shopping, is not alone in this. There is no longer such a thing as a specialist retailer.

The big grocers - Tesco, Asda, Sainsbury's and, to a lesser extent, Morrisons - realised some time ago that while people came to their stores for their daily bread, the profit margins on food are relatively narrow. But if they could bulk-buy products - from fashionable clothes to flat-screen televisions made in China and the Far East - they could become vast department stores. Indeed, the profit margins on the clothes and electrical goods could be better than those on the 50,000 food items.

Even the venerable Marks & Spencer, still the nation's biggest clothing retailer with around 12 per cent of the market, is in the television and kettles business. Consumers who trust M&S with their lingerie needs are not going to doubt that an M&S kettle is as good as one bought from Currys. The need for the general store, of which Woolworths was the exemplar with its eclectic mix of everything from screwdrivers to chocolate bars, is no longer there.

Also undermining the high street is, of course, the internet. Personally, as much as I love browsing in bookshops, new and secondhand, it is a long time since I made a purchase from one. My book shopping is done online through Amazon or the fantastic used-book site AbeBooks. Online sales are rising exponentially, climbing by 54 per cent to £46.6bn in 2007. This is money that is being cannibalised from the high street. Does all of this mean that the high street as we know it is over? One doubts it. But the line-up of stores will change. Tescopoly has its natural limits. In much the same way as Woolworths has been replaced by its modern equivalent, Wilkinsons (which is seeking to buy Woolworths' premises), in some suburban centres, so Currys is going to find itself under pressure from the American import Best Buy, where the emphasis is on expertise and service.

Once it was out-of-town shopping that was the threat. But soon the developers realised that people actually like the social aspect of open-air, high-street shopping and have redeveloped the high street from Bristol to Leeds with open spaces and cafes. The high street is organic and over the coming year or so, as the slump bites, empty stores will proliferate. But don't despair - there will always be an entrepreneur ready to bet on recovery and find ever new ways to claim the shopping pound.

Alex Brummer is City editor of the Daily Mail

Retail carnage

Woolworths - the chain has collapsed with debts of £385m and many of its 815 branches (and 30,000 jobs) are expected to go.

Argos - after reporting its biggest ever fall in sales in October, staff had their hours cut by 20 per cent.

John Lewis - reported a 13 per cent drop in sales, its tenth successive decline.

Debenhams - is carrying nearly £1bn in debts, and profits have dropped by 16 per cent.

MFI - the company went into administration last week; 1,000 jobs will be lost.

Character Group - shares in the firm, which supplies Britain's biggest toy retailers, including Tesco and Toys R Us, dropped 20 per cent last week. The company is now valued at little more than the value of its bank deposits.
JJB Sports - selling off assets to repay £20m loan; JD Sports is considering buying its rival.

Land of Leather - the furniture retailer reports sales down 47 per cent on last year.

Majestic Wine - its half-year profits are down 25 per cent.

Wrapit - the wedding gift-list firm went under in August, taking up to 2,000 couples' presents with it.
Rosebys - the textiles chain closed for good last month - 201 shops have shut.

Hardy Amies - the Savile Row tailor and one-time dressmaker to the Queen went into administration in October, forcing the closure of five of its six UK stores.
. . . and even Tesco has posted its worst performance since 1992, with just 1.9 per cent growth. Shares fell 40 per cent in the past year.

This article first appeared in the 08 December 2008 issue of the New Statesman, After the Terror

Photo: STEFAN BONESS/PANOS
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What Britain needs to understand about the profound and ancient divisions in Germany

As Angela Merkel campaigns for re-election, the balance of power in Europe is changing.

On 24 September, Angela Merkel will be re-elected chancellor of Germany and that, we might think, will be that. With Merkel and France’s Emmanuel Macron in control of the European project, populism will surely be vanquished and the old Franco-German core of the EU restored. Yet things are changing, and if western Europe wants Germany to keep singing “Ode to Joy” as enthusiastically as “Deutschlandlied”, it will have some work to do. Our Brexit negotiators need to see how important this is to Macron, to other European leaders and, above all, to thinking Germans.

For we may all soon miss the old, self-effacing Germany. Despite having such economic power, it always seemed to have no greater wish than to exist as part of a larger whole. Konrad Adenauer, its first postwar chancellor and founding father, made Westbindung (“binding to the West”) the heart of West German politics. Adenauer came from the deeply Catholic Rhineland, “amid the vineyards” as he put it, “where Germany’s windows are open to the West”. His instinctive cultural sympathy was with France, but he knew that West Germany’s existence depended on keeping America in Europe. France he courted out of profound conviction, the US out of clear-eyed necessity, and he was worried that after him this twin course might be abandoned. His demands for reassurance during his final year in office led to John F Kennedy’s “Ich bin ein Berliner” speech of 1963. Every West German knew about that, and about the Berlin Airlift: these became locations of national memory from which West Germany triangulated its sense of self.

There were some Germans for whom this was too much. Anti-Americanism was ingrained among West Germany’s hard left, the early Green Party and the tiny hard right. But even Germans who were suspicious of America had no fear of tying themselves closer to Europe. On the contrary, that was exactly what they wanted. The standard explanation of this is guilt. West Germans, in this argument, felt so remorseful about the horrors of the Second World War that they wanted to make amends. This idea fitted with others’ belief that Germany did indeed have much to feel guilty about.

A nuanced version of this held that the western Germans thought they had somehow “got away with it”, compared with their brethren in the east, who had felt the weight of Soviet vengeance: rape, pillage, occupation. Accordingly, Germany’s willingness to subsume itself so thoroughly, even as it footed the bills for the European Economic Community and later the European Union, was accepted with little gratitude, almost as an ongoing war debt repayment.

This guilt thesis is based on a misunderstanding of German history, especially of the experience of western Germans. The most graphic illustration of this comes from Adenauer. In 1955, he privately informed the British that while he was obliged to act in public as though he wished for reunification, he intended to devote his remaining years to blocking it. In 1961, he secretly proposed to the Americans that they offer the Russians a swap: they and he should, he said, give up West Berlin in return for Thuringia (the region containing Leipzig and Weimar). He wanted, in effect, to make the River Elbe the eastern border of Germany.

Why did Adenauer dislike the eastern Germans, think Berlin was expendable and consider the River Elbe to be the natural frontier? Simple: he knew that the Elbe was Germany’s Mason-Dixon line. Beyond it lay the flat, grim Prussian heartlands, which until 1945 stretched into present-day Russia. This vast region was known to Germans as “Ostelbien” – East Elbia. Adenauer viewed the “unification” of Germany in 1871 as East Elbia’s annexation of the west. That’s why in 1919, as mayor of Cologne, and again in 1923, he tried to get Britain and France to back a breakaway western German state. Having failed, he is said to have muttered, “Here we go, Asia again,” and closed the blinds every time his train crossed east over the Elbe.

Prussia was a different country. The victorious Allies agreed. On 25 February 1947, they declared: “The Prussian state, which from early days has been a bearer of militarism and reaction in Germany… together with its central government and all its agencies are abolished.” The name Prussia was eradicated. The Prussian hegemony of 1871-1945, an anomaly in the two millennia of German history, was over.

If we understand this, we understand what West Germany really was and why it acted as it did; why the “reunification” of 1990 – or, at least, the way it was handled – was such a mistake; why we may all have to stop taking Germany quite so much for granted now that East Elbia is back; and why our Brexit negotiators are on a hiding to nothing if they believe that the Germans have no more urgent business to consider than their car exports to us. Far more important to liberal Germans is keeping safe the western soul of Germany.

***

West Germany was anything but an artificial construct. It was the historical Germany, being almost geographically identical to what was, for almost 1,200 years, the only Germany. Julius Caesar named the land, together with its people, in 58 BC; 49 years later, Drusus, the greatest commander of the infant Roman empire, is said to have been supernaturally advised that after defeating every tribe he met in Germania, he should halt at the River Elbe. By 100 AD, Roman rule was shown by a fortified border, the Limes Germanicus. You can still walk large stretches of it; it encompasses most of the richest land in modern Germany and all of the great cities except Hamburg, Berlin and the 19th-century industrial monocultures of the Ruhr. Even these last were born as trading posts or forward bases within what archaeologists call the “market region” of Germania – the lands beyond the limes where commerce with the Roman empire defined the whole culture. Southern and western Germany’s cultural roots are almost as Roman as France’s.

But what about 9 AD and the destruction of three Roman legions by the German tribes under Arminius? There is a popular myth that this kept all Germany free and different. We owe this idea to Martin Luther and his supporters: Luther claimed from 1520 onwards to be a German, anti-Roman hero and identified himself with the newly rediscovered tale of Arminius. More decisively, the events of 9 AD were an obsession of later Prussian historians, who had an interest in claiming that the real Germany was one that was pure and un-Romanised. Yet the reverse is true. Under the Romans, then the Merovingians, then the Franks, the Rhine/Danube super-region of Germany remained politically and culturally a part of western Europe. After Charlemagne, a Rhineland German, “restored the Roman empire” (as his seals put it) in 800 AD, western Germany was the very centre of things. It was never a nation state, but always the key part of a greater whole, the Holy Roman empire.

Along the Elbe, things were different. Charlemagne extracted tribute from the pagan Slavs across the river, and his successors tried to build on this, but the German conquest and settlement of East Elbia only really began with the Wendish Crusade of 1147, the northern arm of the Second Crusade. Three centuries later, the entire region was still hotly disputed by Balts and Slavs, with German supremacy threatened by major defeats at Tannenberg (1410) and in the Hussite Wars (1419-34).

Long-contested frontier lands breed a special kind of society. The German incomers cowed the natives, such as the pagan Pruscie from whom they ultimately borrowed their name, through brute force. Where they couldn’t, they had to make armed deals with local elites. In this new sort-of-Germany, the Junkers, an aggressive landowning caste, lorded it over the Slavs and Balts – as well as poorer Germans, who knew that the locals would cut their throats if the Junker castles fell, so were loyal and subservient to their masters. East Prussia remained like this within living memory.

In 1525, Prussia named itself and declared itself the first Protestant state. From then on, it had absolute rulers, the Hohenzollern dynasty, backed by a quiescent Lutheran state church. The Junkers swore loyalty in return for exclusive access to all officer-level jobs in the army and the administration. By the mid-18th century, Voltaire quipped that while other states had armies, the Prussian army had a state. The overriding strategic concern of Prussia was always with the east. In his 1758-59 campaigns, Frederick the Great was shocked to find the Russians extremely hard to beat. He bequeathed to his successors a policy of keeping the tsars onside. Partitioning Poland between them was the sticking plaster that masked this Russian-Prussian rivalry, right until 1941.

This thoroughly east-facing power was, by the normal standards of European statehood – history, social structures, religion, geography – a different country from the Rhineland, Swabia or Bavaria. It defeated them all in 1866, laying the ground for the “unification” of 1871. The Prussian empire (for that is what it was) could now enlist the wealth, industry and manpower of Germany in pursuit of its ancient goal: hegemony over north-eastern Europe. By 1887, the future imperial chancellor Bernhard von Bülow was already musing on how to destroy Russia “for a generation”, cleanse Prussia of its Poles, set up a puppet Ukrainian state and take the Prussian armies to the banks of the Volga. This is the bloody Prussian – not German – thread that leads directly to the Nazi onslaught of 1941. In 1945, that centuries-long struggle was settled, in almost inconceivable violence. Half of East Elbia was ruthlessly stripped of Germans and handed over to Poles or Russians; the rump became the German Democratic Republic (GDR), a mere satrap of the Red Army.

So while it is easy and comfortable to say that the otherness of eastern Germany today is the result of that 40-year Soviet occupation, history says otherwise. East Elbia has always been different. Take the voting patterns: from 1871 to 1933, East Elbia outside Berlin (always a left-liberal political island) was the main electoral reservoir for the authoritarian right. The Prussian Conservative Party under the empire, the Deutschnationale Volkspartei until 1928 and the Nazis from 1930 depended on rural and small-town East Elbian voters. It was they who (just) swung things in 1933, by going 50-60 per cent for the “Hitler coalition”. Had all Germany voted like the Rhineland or Bavaria, Hitler and his Junker allies would have got nowhere close to a majority. Small wonder that Adenauer didn’t want East Elbia back and was secretly delighted to have it safely fenced off behind the Iron Curtain.

***

West Germany (1949-90) – Germany shorn of Prussia – was, then, no historical fluke, and nor was the supra­national way it acted. This was the real Germany. But the hasty reunification of 1990 (there was no referendum or election on the issue) changed things. Why should the inhabitants of the former GDR, rather than Poles and Czechs, get immediate access to the wealth and benefits of the West? Because they were Germans. With that, the chancellor Helmut Kohl embraced the notion that being German overrode all considerations of social, economic or historical difference. He also subliminally revived the idea, common to the Second Empire and the Third Reich, that East Elbia was special and needed subsidising by the rich west of Germany. The director of the Bundesbank, Germany’s central bank, resigned in 1991 over this abandoning of economic sanity for political nationalism.

Since 1990, the former East Germany has received more than €2trn from the old West Germany, for a fast-ageing, shrinking and disproportionately male population of only 16 million, including Berlin. That’s the equivalent of a Greek bailout every year since 1990, and as a straight gift, not a loan. This represents a huge shift in financial priorities, overshadowing Germany’s annual net EU budget contribution (currently €15.5bn). In 1990, Kohl promised that western German aid would soon turn the new states into “blooming” areas, but they have become, instead, proof that age-old differences resist even the most gigantic subsidies.

Between 30 and 40 per cent of voters in East Elbia have declared over the past two years that at the general election, they intend to support either Alternative für Deutschland (Germany’s Ukip), Die Linke (heirs to the old East German Communist Party) or the all but openly neo-Nazi National Democratic Party (the NPD, currently represented in the Mecklenburg-Vorpommern state parliament). Though theoretical enemies, these three parties are united by cultural affinities: all despise economic liberalism, oppose Nato and the EU and want closer relations with Russia.

East Elbia no longer has the population to swing the entire German electorate of more than 61 million but many liberal western Germans are nervous. They recoil at the sight of anti-asylum-seeker attacks, which are proportionally far more common in East Elbia than in the west, or when they see Merkel heckled by right-wingers. They call East Elbia Dunkeldeutschland (“Dark Germany”) and joke bitterly that if Britain can have a Brexit, why can’t the old East Germans, whom they lump together under the name of Saxons, have a “Säxit”? But it’s no laughing matter. They know there are those only too aware of any anti-western drift in Germany and eager to give succour to it.

Alexander Saldostanov, the rabid leader of Russia’s “Night Wolves” bikers and a public friend of Vladimir Putin, recently told Germany’s bestselling daily, Bild, that he dreams of a grand union between Germany and Russia: “We have so much in common. You simply have to free yourself at last from America, that scourge of humanity. Together, we can, should and must take power.”

There’s no danger of that, but there is a sense in which eastern Europe is, to Germans, no longer “the other”. It’s the place whence natural gas flows from Russia, where labour is cheap but skilled and where the people are keen to work with Germany on setting up new sites of joint national memory. From Kaliningrad to Prague, museums and projects are springing up in which the horrors of the past are neither denied nor used as ammunition in today’s negotiations. In eastern Europe, perhaps because Russia is so close, the Germans are rarely made to feel guilty for their grandfathers’ sins. Meanwhile in the west, from Greece to Britain, people can’t resist mentioning the war whenever the Germans don’t act as desired.

***

Germany’s resources are not infinite. Nor is the patience of the 40 per cent of Germans who “have net worths of essentially zero”, as Die Welt reported last year – largely because German home ownership rates are the lowest in the EU. They are disproportionately concentrated in the old east, the region that never had supranational, western European connections. From them come ever-louder voices saying that Germany’s EU contribution is too high. And with Britain out, the maths will look even worse to such voters. If south-western Germany’s taxes have to keep bailing out the country’s east, while also helping out the old and new EU lands, what is left for, say, the post-industrial Ruhr, which has financial and social problems of its own? There are tough choices ahead, and it’s not hard to imagine a day when Germany decides to aim its subsidies and investments where they seem most welcome. The old idea of Mitteleuropa – a multi-ethnic, German-centred Middle Europe, neither of the West nor of the East – no longer seems so antiquarian. Nothing would gladden Putin’s heart more.

So, yes, Merkel will win the election and will have a chance to revive the EU’s Franco-­German core. Yet the relative strengths of France and Germany are different now. As for their leaders, while Adenauer was a devoted Catholic Rhinelander, Merkel is a Lutheran vicar’s daughter from the east. Bonn was physically close to Paris, Brussels, The Hague, even London; Berlin is closer to Prague and Warsaw.

With Donald Trump’s wavering on Nato and his noisy anti-German protectionism, along with Brexit, the West may no longer seem vital to Germany’s future. During Merkel’s election debate with her main challenger, Martin Schulz, on 3 September, Brexit was not even mentioned. The old EU core will have to work to keep Germany anchored, resisting any new call from the east. Macron and German liberals know that; that’s why there will be no Franco-German split over Brexit just to sell us a few more Audis. The sooner David Davis and Liam Fox realise that the Germans have far bigger issues to deal with, the better.

James Hawes is the author of “The Shortest History of Germany” (Old Street Publishing)

This article first appeared in the 08 December 2008 issue of the New Statesman, After the Terror