January 11, 2017 / 12:03 PM / 8 months ago

UK retailers offer belated gift for economic bulls

A woman shops at a Sainsbury's store in London, Britain December 3, 2015. REUTERS/Neil Hall - RTX1X01R

LONDON (Reuters Breakingviews) - Christmas is bestowing a belated gift on Britain’s economic bulls. Supermarkets J Sainsbury and Wm Morrison both beat sales expectations over the festive season. Such numbers are closely watched because some general retailers make as much as 45 percent of their annual revenue towards the end of the year. Consumer sentiment is as important as the amount spent, and the signs so far are encouraging.

Sainsbury’s sales grew 0.1 percent in the three-month period that spans the Christmas spell, the first positive like-for-like growth since 2013, according to Bernstein analysts. Its smaller competitor Morrisons’ festive sales were more than double expectations.

Consumers are getting help from the retailers themselves. Grocers are tweaking prices in the background to drive spending. Sainsbury’s said its customers paid 14 percent less for a typical Christmas basket of goods than they did two years ago, largely down to highly targeted price cuts on turkeys and sprouts.

The question is whether that frees up more funds for extra discretionary spending. Early indications are that demand for non-food goods, everything from clothing to toys, is also holding up. Like-for-like sales at general retailer Argos, which Sainsbury’s bought from Home Retail group last year, ticked up 4 percent. Sainsbury’s own clothing sales grew 10 percent.     

Black Friday, the November one-day sales frenzy that is a relatively recent arrival in the United Kingdom, is reshaping sales spikes. Retailer Dixons Carphone has said the end of the year now resembles a two-humped camel. But December remains important, contributing 12 percent of overall UK retail sales, according to Office for National Statistics data. General retailers are even more heavily dependent on shoppers’ mood in the lead-up to Christmas.

Because of its discretionary character, Christmas yields important information not just on what shoppers spent, but how they feel. Fashion retailer Next has sounded a bearish note on clothing demand, and food deflation can’t persist forever. But higher than expected seasonal sales suggest a still-buoyant consumer mindset.

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