LONDON Jan 9 Tesco and Marks & Spencer
, the biggest names in British retail, posted heavy falls
in sales in the run up to Christmas, showing no sign of their
much vaunted turnarounds and ratcheting up pressure on their
The 130-year-old M&S reported its 10th consecutive quarter
of falling clothing sales and cut its margin guidance after
fierce discounting by rivals forced Britain's biggest clothing
retailer to slash prices in the week before Christmas.
The 2.1 percent drop in general merchandise sales, which
spans clothing, footwear and homewares, was well below
forecasts. It avoided a formal profit warning by delivering a
strong performance in its food division.
At Tesco, the world's third biggest retailer with 3,100
stores in Britain, trading in its home market slumped 2.4
percent, at the bottom end of expectations and prompting the
company to acknowledge that the market consensus had come down.
The weak trading updates pile pressure on M&S Chief
Executive Marc Bolland, who has been in the post for almost four
years, and Philip Clarke, who has been in the top job nearly
To add to the gloomy picture, WM Morrison issued an
unscheduled trading update to reveal a sharp fall in
like-for-like sales over Christmas and said it now expected its
full-year profit performance to be towards the bottom of the
range of market expectations.
Britain's fourth largest supermarket chain, which has been
hit hard in recent years by the growth of German discount
grocers Aldi and Lidl and its lack of an online offering, said
it did not see the usual surge in shoppers who normally upgrade
to Morrisons over the Christmas period.
Those who did turn up bought fewer products.
Joe Rundle, heading of trading at ETX Capital, a spread
betting company, said the trading updates showed difficult
conditions in which even big money promotional activity and
heavy discounts could not help boost sales.
"For M&S, Tesco and WM Morrison, it's the outlook for these
retailers which worries the market, (they) have questionable
strategies which are now under intense scrutiny by shareholders
and the market alike."
Though Britain's economy is improving, major grocers are
finding the going tough despite their focus on essential goods,
as consumers' disposable incomes remain under pressure from wage
rises not keeping up with inflation.
Analysts reckon all of Britain's so called "big four"
grocers, which also includes Wal-Mart's Asda, J
Sainsbury and Morrisons, lost market share in the
run-up to Christmas, reflecting a subdued overall market and
increased promotional activity.
In a sign of how tough trading is among the big grocers, the
main winner among the four is likely to be Sainsbury's, which
eked out growth of 0.2 percent excluding fuel, in the 14 weeks
to Jan. 4, its fiscal third quarter.
Tesco, which makes about two thirds of its revenue in
Britain, is 20 months into its UK turnaround plan and is pouring
investment into store upgrades, extra staff, new product ranges
and price initiatives.
Shares in the group, which trails France's Carrefour
and U.S. giant Wal-Mart in annual sales, were
down 2.7 percent.
Morrisons fell 5.5 percent while shares in M&S, which is
also in the middle of a turnaround plan in its fashion range,
rose 3 percent as analysts said much of the bad news had already
been priced in.
"Given low prior expectations, investors appear to be
breathing a sigh of relief," said Keith Bowman, Equity Analyst
at Hargreaves Lansdown Stockbrokers, commenting on M&S. "Sales
have proved to be no worse than forecast. Nonetheless,
performance remains a long way from rival Next.
"In all, the former Morrisons chief executive (Bolland)
continues to be given the benefit of the doubt, with analyst
opinion coming in at a hold, albeit a firm one."
M&S CEO Bolland said he was seeing signs of improvement in
the important womenswear business. He has previously insisted
the reception of M&S's autumn/winter ranges will not make or
break his stewardship of the company, stressing recovery will be
a "step by step" process.
"There is really no volume growth (in grocery)," Neil
Saunders, of retail analysis group Conlumino, said.
"There is an awful lot of supply, so the end result is there
is a great deal of competition and ultimately it is very much a
zero sum game. Someone gains share and someone else loses it,
and what we have seen today is two of the losers from the
grocery market at Christmas."
The more general fashion and homeware retailers have also
been hit by fierce discounting in the run up to Christmas, with
many British high streets a sea of red sale signs.
Trading updates released since the Christmas holiday have
revealed the split amongst retailers, with Next and John
Lewis reporting bumper trading while retailer
Debenhams issued a sharp profit warning.