Up to a quarter of Britain's biggest retailers will be under threat next year, the State of Retail report suggests.

Retailers are particularly exposed to a downturn because of low margins, but about 60 of the biggest 200 are entering the downturn in a loss-making position.

“Frankly, there are some people out there who haven't moved on and that will drive consolidation,” Richard McKenzie, a partner at OC&C, the strategy consultancy that carried out the report, said. “Around 20 per cent are going to be vulnerable in their current form over the medium term.” PricewaterhouseCoopers, the accountancy, estimates that up to one in five stores could be empty by the time that the economy picks up.

“Customers in this environment are quite demonstratively becoming very unforgiving of retailers that don't offer value for money,” Mr McKenzie said. Britain can, therefore, expect fierce price competition in certain sectors and a lot of very noisy marketing. A retailer can batten down the hatches and cut [marketing] costs but only if you've demonstrated your value-for-money credentials. The challenge comes if you're not value for money: these are the retailers that are going to suffer.”

Some companies will take defensive positions on promotions and advertising, while others cannot afford to stop spending, he said.

This may explain squabbling among the major supermarkets. Justin King, chief executive of J Sainsbury, told The Times last week: “I saw a report saying that Tesco were the most recession-proof business. It's interesting it was published at a time when they're the weakest trading of the big four.”

The recession of the early 1990s provided a springboard for the biggest supermarkets to expand even further. On the basis of the State of Retail findings, it would not be wise to bet against them doing so this time.

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