Holiday shopping worries on both sides of the Atlantic

Whether shopping on the High Street or Main Street, the conventional wisdom is that both British and American consumers will be keeping tighter grips on their wallets — or notecases as they’re called over there — this holiday season.

With the fallout from the subprime mortgage crisis, falling housing values, and record high oil prices being felt by strapped consumers in both countries, it’s not surprising that retailers’ expectations are not so great this year. Indeed, the picture looks somewhat gloomier in Britain than in the US as a result of five interest rate hikes (prior to the December quarter-point cut by the Bank of England) since mid-2006 and the shocking downfall of UK mortgage lender Northern Rock in September. Britons can be forgiven for being cautious after witnessing their country’s first bank run in more than a century! Then there’s the fact that the Brits are even more heavily in debt than Americans. After years of being scolded for being such profligate spenders, many Americans will be surprised to learn that the British are even worse. Household debt as a percentage of gross disposable income is 166%, compared with 127% in the US, according to a recent piece in BusinessWeek.

Will the BoE’s too-little-probably-too-late interest rate cut be enough to ease the concerns of England’s retailers? Much like in the US, it will depend on their niche. There are likely to be big variations between the winners and losers this holiday season. Discount chains, food, and online retailers, including the UK’s Wal-Mart-owned ASDA Group, are expected to outperform apparel shops and mid-tier department stores chains, such as troubled Debenhams. Luxury retailers, including quintessentially-British Burberry, that cater to those less likely to feel the effects of high gas prices and interest rates are expected to do well.

After all the gloom and doom about how the credit crunch is expected to play Grinch to the retail sector, the latest government data show that US retail sales demonstrated unexpected strength in November and offer a glimmer of hope for the remainder of 2007. While the season got off to a strong start, doorbusters —  such as $229 laptop computers and $160 KitchenAid stand mixers — may be driving top line sales. Investors will have to wait until January to see if Santa brings any profits.