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WRAPUP 1-Poor Christmas at M&S and Tesco ratchets up pressure on CEOs
January 9, 2014 / 10:25 AM / 4 years ago

WRAPUP 1-Poor Christmas at M&S and Tesco ratchets up pressure on CEOs

LONDON, Jan 9 (Reuters) - 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 chief executives.

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 three years.

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.

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