Few would have guessed what lay in store last September when Simon Wolfson, the Next chief executive, warned investors that the outlook was far from rosy.

Despite encouraging half-year results, Mr Wolfson said he was concerned that millions of homeowners had yet to feel the full impact of higher interest rates. He added: “The economic environment is going to get tougher.”

How right he was. Today retail stocks are trading at their lowest values since the late 1960s amid a flurry of profit warnings, earnings downgrades and companies going into administration.

Shares in Next have fallen 50 per cent in the past year, while DSG International has plunged 71 per cent.

Crunch calendar: where it all went wrong

Timeline of the key dates, from the first fears over sub-prime lending last spring to the latest banking losses

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• The slowdown doesn't come cheap: price rises over the past year

Marks & Spencer has seen almost two thirds of its market capitalisation wiped out following a dire Christmas trading statement and last month’s profit warning.

Sir Stuart Rose, M&S executive chairman, said: “I think this slowdown is going to continue right the way through 2009 and there is no sign of relief.”

Experts predict that 100,000 jobs could go by the end of next year as stores lay off staff to cut costs. A dozen high street chains have collapsed, including Dolcis, the shoe store that traced its history back to 1863, and other bigger names are expected to follow.

Debt, the key currency that fuelled a flurry of acquisitions in the retail sector, has become a millstone on company balance sheets as investors worry that nervous banks may pull the plug.

Just one year ago, the Qatari Investment Authority was mulling a £10 billion bid for J Sainsbury before the credit crunch transformed the M&A landscape. Three months ago Baugur, the Icelandic investor, scrapped plans for a £40 million takeover of Moss Bros, the beleaguered menswear retailer.

The prospects for the sector appear grim. Consumer spending next year is forecast to grow by only 0.5 per cent, compared with 3 per cent in 2007.

At the same time, around 1.25 million sq ft of new retail space is due to open, the equivalent of eight Bluewater shopping centres.

Meanwhile the internet continues to take more business away from traditional high street chains with the success of dotcom companies such as ASOS, the online fashion chain.

Richard Hyman, strategy director at Deloitte, says: “There are too many mouths to feed and something has got to give.

"The credit crunch has simply highlighted the big structural issues the industry is facing. I'm afraid things are going to get a lot worse before they get better.”

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