March 19 (Bloomberg) -- Shopping streets are losing their shops at a steady pace across Britain’s regional centers, with only sandwich chains and fried-chicken joints thriving amid boarded-up department stores and fashion retailers.

In Watford, a town of about 80,000 people some 20 miles (32 kilometers) northwest of London, the old Woolworths and MK One clothing stores sit empty after the recession forced them out of business.

“It’s like every other town at the moment. It’s dying,” says 60-year-old Valerie Mosley, stepping over fast-food litter beside a pedestrian zone occupied by outlets of Subway, Nando’s and Sam’s Chicken, whose neon yellow sign offers two meals for 2 pounds ($2.84). Watford “used to be a lovely market town. Now one shop after another is closing.”

A record 15 percent of British stores will be vacant by the end of 2009, according to Experian Plc. The researcher estimates that about 1,600 U.K. retailers may go out of business this year as slumping consumer confidence weighs on the U.K.’s 278-billion- pound retail market. Woolworths Group Plc and music chain Zavvi Group are among those that have already gone.

“Vacancies on the high street are going to get worse before they get better,” Experian’s head of retail consultancy Jon de Mello said in a phone interview.

The increased availability of real estate in towns like Watford has led to an influx of discount stores, supermarkets and fast-food chains aiming to capitalize on a shift toward budget retailers as incomes shrink. Pawn shops are also opening up on main streets in cities like Manchester and Reading.

Watford’s town center has at least 10 vacant storefronts, including outlets formerly housing the Orbit electronics chain, Bakers Oven and nationalized lender Bradford & Bingley Plc.

Woolworths Collapse

In Bishop’s Stortford, 30 miles northeast of London, 17 shops are empty in the main shopping street, town center manager Janine Garner said. Three have closed in the last two months, including a Priceless shoe store, a florist and a fashion store. Shopper numbers are 5 percent below the same time last year.

According to Garner, the fashion chains that were bidding for leases last year are being replaced with “supermarkets, discount stores and new start-up independent retailers.” Tesco Plc, the U.K.’s biggest supermarket company, is due to open an outlet in Bishop’s Stortford in the next few weeks, she said.

So far, London’s retailers haven’t been as badly affected by the recession as those in the provinces. In central London, retail sales rose 5.9 percent in February as the euro’s strength against sterling attracted more tourists, according to the London Retail Consortium. Revenue at all U.K. stores open at least a year fell 1.8 percent, the eighth drop in nine months.

Yum Brands!

Woolworths collapsed in November, leaving 27,000 people out of work. Of the retailer’s 813 stores, 51 have been bought by Iceland Foods Ltd., the U.K. frozen-food chain, while fashion retailer Hennes & Mauritz AB took over three. Most of the others have remained empty since they closed in January.

“We’ve lost two Woolworths and a big Zavvi,” Roger Gagan, chief executive officer of Watford & West Herts Chambers of Commerce, said by phone. “A lot of smaller ones, independents and, particularly, clothing shops, are suffering.”

The rising number of empty shops mean there are “great property deals out there” as prime real estate positions become available for rents that have fallen an average of 1.2 percent in the past six months, Experian’s de Mello said.

The glut of vacant properties has attracted the likes of U.S. restaurant chain Yum! Brands Inc. which is looking to open an additional 300 KFC outlets in the U.K. Domino’s Pizza U.K. & Ireland Plc and sandwich-shop chain Subway have announced similar plans, aiming to capitalize on Britons’ increasing appetite for cheap convenience food during the recession.

More Litter

The proliferation of fast-food outlets has led to an increase in littering over the last five years, according to a survey of 10 cities conducted in December for the Keep Britain Tidy lobby group. The study found that 24 percent of U.K. streets were “blighted” by rubbish such as burger boxes and chip packets, up from 16 percent in 2003.

Discount retailers are also snapping up empty space. Dunelm Group Plc, a budget homeware chain that sells non-iron poly- cotton sheets for as little as 7.99 pounds, has contracts signed to open at least seven new stores next year.

“Let’s say two years ago a landlord wanted 20 pounds a square foot and it’s still empty. He might now talk to you at 15 pounds a foot,” CEO Will Adderley said in a phone interview. “We’re seeing good quality stuff at prices we can now afford.”

Budget chain Poundland, whose Watford store is “booming,” according to store manager Amer Ghaura, is also building up its outlets. Poundland will open 35 stores in the fiscal year to March 2009, and plans a further 30 next year.

Pawnbroker Shops

Janet Strutt, a 42-year-old pharmacy assistant, said she visits the Poundland outlet in Watford every day to buy a 2 liter bottle of milk for 1 pound. The cost in her local J Sainsbury Plc supermarket is 1.39 pounds, she said.

“It’s always busy in here,” Strutt said as she lined up behind six people in the Poundland store, holding a basket filled with potato chips and jam teacakes. “It’s cheaper than anywhere. You’ve got to keep an eye on the pennies.”

Pawnbrokers are also capitalizing on the increased availability of retail space to add outlets as banks’ reluctance to lend during the credit crunch leads to increased demand for their services.

H&T Group Plc, which operates 93 pawn shops across Britain, has been performing “exceptionally well” in Watford, Chief Executive Officer John Nichols said in a phone interview from Glasgow. H&T will open 15 stores this year, including outlets in Rochdale, Reading and Manchester, and plans to take advantage of “double-digit” growth forecast for this year.

For Mosley, her weekly shop in Watford will never be the same again. “It doesn’t feel nice up here at all,” she said. “It’s just become another big town like London.”

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

Last Updated: March 19, 2009 03:00 EDT