DSG International, the owner of Currys and PC World, will announce its first half-year loss in two decades this week, in the latest sign that high street retailers have been hit hard by the downturn in the economy.

The electrical goods retailer has suffered from a slump in sales of big-ticket items because of the slowdown in the housing market and the wider economy just as Best Buy, America's biggest electricals retailer, prepares to enter the British market.

DSG's results come amid heightened fears about the health of the retail sector. Yesterday, John Lewis Partnership, which is considered to be a barometer for middle-class spending, said that sales at its department stores were down 13 per cent over the week to Saturday against the same week last year. It comes after a 14 per cent drop in sales for the previous week.

DSG is unlikely to brighten this gloomy picture, analysts say. They expect the retail group to announce losses of between £25 million and £35 million on Thursday, with some predicting that the retailer will cut its dividend payout for the first six months of the year. This loss compares with a pre-tax profit of £52.4 million for the same period last year. Like-for-like sales are forecast to have fallen by 9 per cent.

The results will intensify pressure on John Browett, the chief executive, who took over in May this year promising to “transform the DNA” of the company. The former Tesco executive is considering selling some of its European businesses. On the home front, he has overseen store redesigns at Currys, placing a new megastore format at the centre of his turnaround plans, and pledged to improve service.

At a tour of a new model store in Wednesbury, Birmingham, he outlined his vision for how DSG could ward off the threat from Best Buy and survive the downturn. The refurbishment of the Birmingham store added an extra 15,000 sqft of selling space to the premises, taking the total to 55,000 sqft, enabling the number of product lines to be increased from 4,000 to 17,000.

“You can be a specialist to end all specialists,” Mr Browett said. Showing off a new hi-fi studio in an alcove of the megastore, he added: “If you go to Richer Sounds or other people who purport to be specialists, they'll have nothing like this where you can do a demonstration, because it's a pokey little place.” Smaller Currys Digital stores, mostly former Dixons shops, are also being refitted, with the aim of making them feel less cluttered.

All Curry's 10,000 employees are being retrained in customer service: “Our problem isn't that our service isn't good - it's that it isn't consistently good. The UK has a problem with service, full stop. How many times have we seen American companies come and tell us about service?”

The arrival of the American retailer in the UK is a chance to “dramatically move the business forward”, he said, adding that he wanted to open as many new megastores as his finance director would let him. “Retail is an undeniably local business, ” he said.

The DSG boss is appealing for time for his plans to deliver results. “The reality is, it will take three years at least to do the whole thing,” Mr Browett said.

So far, however, investors have shown little patience. DSG's share price fell by 64 per cent over the past two weeks, closing on Friday at only 12p, amid fears that suppliers would insist on unfavourable payment terms after credit insurers withdrew some cover. The company has lost nearly 90 per cent of its market value in the past year. Last week, it suffered the ignominy of being downgraded by its house brokers, with one saying that this week's results would offer “little support” to investors.

Some analysts are sceptical about the move to out-of-town megastores, pointing out that DSG is committed to leases on loss-making high street sites. “DSG have huge operating lease liabilities. Some stores, I gather, are performing so badly they're not covering the rent. They have way too many stores in the UK,” Sam Hart, of Charles Stanley, said. “There have to be long- term question marks over the viability of the European businesses, particularly Italy. There's no strategic reason for them to hang around there.”

Also this week, Kingfisher, the B&Q owner, will publish its trading statement for the third quarter.

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