One of Britain’s biggest home shopping groups yesterday blamed a surprise profit warning on a sharp rise in the number of customers struggling to pay their debts. Findel, which runs seven mail order catalogue and online businesses, said that it was having to set aside a further £5 million to cover bad debts, taking its total provision to a record £88 million.

Patrick Jolly, chief executive, said that some of the group’s “sub-prime” customers had still not met repayments on purchases made before Christmas.

Shares in the group plunged 37 per cent to a five-year low of 280p as industry experts said the warning would trigger yet more fears about the extent of the fallout from the credit crunch.

Shares in N Brown, a home shopping rival, tumbled 7 per cent while Next, home to the Next Directory mail order catalogue, fell 3 per cent.

Jonathan Pritchard, retail analyst at Oriel Securities, said: “Findel’s customers tend to be in the C2DE demographic and it is clear that repayments from this source are going to be less reliable as the customer retrenches and recession bites. We fear for a number of other similar companies.”

Findel gives credit to more than one million customers. After a 28-day interest free period, they are charged an APR of 39.8 per cent on all purchases.

Most of these customers shop with Findel’s Studio or Ace brands, which sell a range of products from flat-screen televisions to vacuum cleaners and personalised dressing gowns.

Only two weeks ago Findel told the stock market that trading was in line with expectations after record sales for the year to March 31.

However, its shares have fallen since then, prompting speculation over the company’s financial health.

Findel yesterday confirmed that it would now miss profit expectations for the year to March 31 because of the extra provision against bad debt.

Mr Jolly insisted that the share price plunge was an “extreme reaction” to a prudent step taken by the company. He added that Findel’s tighter lending criteria meant it turned away 400,000 customers seeking credit last year.

He said: “People are having to manage their budgets even more carefully than they have ever done and they are taking a little bit longer to pay off their balances.

“During our year-end roll-up we had a look at the way bad debt has been going, looked at the underlying economy, and decided we should raise the provision.

“What’s happened to the share price is a sign of how jittery the capital markets are. I feel that people have lost sight of the fact that we are a growing and profitable business.”

Mr Jolly added that the group had investigated the recent fall in the share price and found there was no reason to believe “improper activity” had taken place.

Findel is now likely to report pretax profits of less than £60 million for the recent financial year – nearly £8 million below original expectations.

Experts believe that the retail sector is facing its toughest trading climate for more than 30 years, given rising bills and the amount of new floor space being opened in the UK. Richard Hyman, an independent retail analyst, believes that up to 120,000 jobs could go over the next two years.

BDO Stoy Hayward, the corporate recovery specialist, fears the number of business failures in the retail sector in 2008 could hit nearly 1,400, the highest for six years.

Citizens Advice said yesterday that it had seen a 6 per cent increase in the number of people registering with debt problems.

About 300 of its busiest offices handled 200,000 cases in January and February. A spokeswoman said: “We are seeing an increase in the number of people struggling to pay their bills.”

Catalogued

1932 the year mail order became an important sector of retail trade with entry of Littlewoods into the market

£3.56 billion value of UK mail order sales in 1990s

15 books offered by Aldus Manutius of Venice in 1498 in what is considered the oldest catalogue on record

350 pages in first Next Directory in 1988

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