* M&S Q3 clothing lfl sales down 2.1 pct, food up 1.6 pct
* Tesco 6 weeks to Jan 4 UK lfl sales, ex fuel and VAT, down
* Morrisons 6 weeks to Jan 5 lfl sales down 5.6 pct, ex VAT
* M&S shares rise up to 3.8 pct, Tesco's fall up to 4 pct
By James Davey and Kate Holton
LONDON, Jan 9 Tesco, Marks & Spencer and
Morrisons, three of the biggest names in British retailing,
posted heavy falls in Christmas sales, showing few signs that
their costly turnaround plans are working, and raising the
pressure on their leaders.
Despite signs the British economy is improving, household
incomes remain stagnant as inflation outstrips slim pay rises,
and Christmas has so far been mixed for the store groups.
"All three reports today were pretty nasty - Morrisons
especially so," said a UK investor with shares in all the
Next, Britain's No. 2 clothing retailer, John Lewis
, the nation's biggest department store group and No. 6
grocer Waitrose have reported positive updates, driven by
powerful online performances. But others, such as Debenhams
and Mothercare have issued profit warnings.
Tesco, M&S and Morrisons are under
intense pressure from their traditional rivals but are also
facing a new wave of competition from discounters such as Aldi
, Lidl and Primark, as well as
Internet specialists like Amazon and ASOS.
Annual inflation fell to a four-year low of 2.1 percent in
November but consumers have been hit particularly by soaring
energy bills. Average earnings in Britain were up just 0.9
percent in the three months to October, compared with the
All retailers have said they expect 2014 to remain tough for
Britons with wage rises continuing to fall short of inflation.
M&S, Britain's biggest clothing retailer which started out
as a penny bazaar 130 years ago, reported a 10th consecutive
quarter of falling clothing sales and cut its margin guidance
after fierce discounting by rivals forced it to slash prices in
Its sales of general merchandise - which spans clothing,
footwear and homewares - fell 2.1 percent in its third quarter
to Dec. 28 at stores which have been open for more than a year.
This drop was greater than analysts' forecasts and the firm
avoided having to issue a formal profit warning only by
delivering a strong performance in its food business.
At Tesco - the world's third biggest retailer which traces
its roots to a market stall in London's East End in 1919 -
like-for-like sales fell 2.4 percent over the six weeks to Jan.
4 in its home market. Tesco has more than 3,100 stores in
Britain, contributing two thirds of group revenue.
This outcome was at the bottom end of analysts' expectations
and prompted Tesco to acknowledge that the market consensus for
its 2013-14 profit had come down.
Morrisons, the No. 4 UK grocer, revealed a 5.6 percent drop
in like-for-like sales in the six weeks to Jan. 5, and forecast
year profit towards the bottom end of market expectations.
Chief Executive Dalton Philips had forecast in November a
return to like-for-like growth in the Christmas quarter.
The firm, hit hard by its late entry into online and
convenience channels as well as the growth of German discount
grocers Aldi and Lidl, said it did not see the usual surge in
shoppers who normally upgrade to its stores at Christmas.
The weak updates pile pressure on Tesco CEO Phil Clarke, who
has been in the post nearly three years, M&S's Marc Bolland, and
Morrisons' Philips, who have both held the top jobs for nearly
All highlighted the tough trading conditions they were up
against but stressed their strategies would eventually deliver.
"Holding our nerve was certainly something that we were
doing, but the market didn't," said Bolland in reference to the
unprecedented levels of clothing discounting.
The Dutchman is in the final year of a three-year, 2.3
billion pound ($3.8 billion) plan to make M&S an international
retailer connecting with customers through stores, the Internet
and mobile devices.
Bolland has denied the reception of M&S's autumn/winter
clothing ranges will make or break his leadership, repeatedly
saying that recovery will be "step by step".
He highlighted "early signs of improvement" in the
womenswear business, with small market share growth in this area
for the first time in three years.
Though M&S shares have fallen 4 percent over the last
quarter they have risen 20 percent over the last year on hopes
of a recovery and increased as much as 3.8 percent on Thursday.
"It tells you how poor sentiment was going into this
statement," said the UK investor. "The bull case for M&S still
probably rests with a Next-like transformation, with increased
shareholder returns driven by dividend growth/special dividends
Clarke, 20 months into a plan that has seen over 1 billion
pounds poured into stores, extra staff, new product ranges and
prices, said UK consumers remained under severe pressure.
"They don't have as much to spend as they used to because of
the price of fuel and the price of utilities," he said.
Consumers were shopping more locally and online, shopping
little and more often, he said, noting that Tesco was adapting
to the changes.
Shares in Tesco fell up to 4 percent, while Morrisons fell
up to 7.7 percent.
"I don't think any of these situations is irretrievable, but
there are no tailwinds at the moment so it's all headwinds for
them," said Jim Stride, head of UK Equities at AXA IM, who is a
shareholder in all three retailers.