January 9, 2020 / 9:53 AM / 6 days ago

Christmas brings little respite for struggling UK high street

LONDON (Reuters) - A Christmas crunch inflicted more pain on British retailers on Thursday, as changing habits and belt-tightening exposed the industry’s struggle to eke out growth and its slim margin for error.

One of Britain’s best known chain stores John Lewis [JLPLC.UL] warned it was one of the “most severe” markets in a generation, Marks & Spencer’s (MKS.L) described conditions in clothing and homeware as “challenging” while Britain’s biggest retailer Tesco (TSCO.L) said the market was subdued.

Industry data on Thursday showed British shoppers cut back at the end of 2019, rounding off the worst year since the mid-1990s for retail sales amid uncertainty over Brexit, last month’s election and slowing wage growth.

Instead of buying goods, consumers opted to spend on experiences, according to payment card company Barclaycard showed. Cinema ticket sales were up 19%, while spending in pubs and on takeaway food rose by about 12%, its data showed.

Adding to the downbeat outlook, Tesco said Prime Minister Boris Johnson’s resounding election victory in December, which broke the deadlock over Brexit and lifted financial market sentiment, had not unleashed any pent-up demand.

On Wednesday, Sainsbury’s (SBRY.L), Britain’s second largest supermarket, said it hadn’t seen any change in behaviour since the nation went to the polls.

The data and lacklustre trading updates from the UK’s best-known stores will underscore concerns that the prolonged downturn in consumer spending will last longer than feared.

M&S and Tesco highlighted the unforgiving nature of a market in which retailers have to get the right products available at exactly the right time in order to find any growth.

M&S saw quarterly underlying UK sales rise for the first time since 2017, but its festive season was tarnished by basic mistakes in managing clothes supplies.

Menswear sales suffered because it over-bought skinny and slim styles in its contemporary ranges, under-bought more classic fits, and also had too many small sizes and not enough medium and large ones.

Investors punished the company for the mishap - the stock was down more than 10%, set for their worst day since late February 2019.

In an indication of how hard supermarkets had to work over the holiday period, Tesco (TSCO.L) cut prices, delivered its best operational performance in six years and saw its biggest ever day of UK food sales.

In doing so, it eked out a meagre 0.1% rise in underlying UK sales over the key Christmas period.

(Graphic: Christmas turkey on the high street click, here)

BUSY PUBS

For employee-owned John Lewis Partnership, which runs the eponymous department stores business and up-market supermarket Waitrose, the prospect of not paying a bonus for the first time since 1953 highlights how tough times are for some retailers.

Like rival department stores, John Lewis has been under pressure for some time, and in March last year reported a 45% drop in full-year profit, hurt by weak demand and rising costs.

It is not just the big guns suffering, with pain also being felt among niche players such as British greeting card retailer Card Factory (CARDC.L), which said it expected lower annual earnings, sending its shares down 17%.

Amid the gloom there have been some bright spots, with homeware retailer Dunelm (DNLM.L) forecasting a near 20% jump in earnings for the first half of its fiscal year, thanks to its decision not to discount over the holiday season.

Dunelm’s more upbeat outlook echoed British clothing retailer Next (NXT.L), which last week raised its full-year profit forecast after a better-than-expected Christmas.

And British pub and restaurant operator Mitchells & Butlers (MAB.L) also saw strong festive season sales, as more diners opted for its pricier healthy menu options.

FILE PHOTO: Signage is seen outside a Tesco extra superstore near Manchester, Britain January 8, 2020. REUTERS/Phil Noble

(Graphic: Market punishes UK retailers click, here)

Additional reporting by Paul Sandle, James Davey, Tanishaa Nadkar and Muvija M; Writing by Alexander Smith; Editing by Carmel Crimmins and David Goodman

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