Tesco Plc and J Sainsbury Plc may report stronger sales this week as the U.K.’s worst early snowfall in 17 years prompted Britons to do all their holiday shopping in a single supermarket visit or to order online.
While the snow kept consumers away from town centers, depressing sales at HMV Group Plc and Mothercare Plc, supermarkets probably gained as shoppers sought to minimize travel and make most of their purchases under one roof, said Nick Bubb, an analyst at Arden Partners Plc in London.
“There is an expectation that this year the convenience and power of one-stop-shopping helped the supermarkets,” said Bubb. “All the toys that Mothercare didn’t sell and the DVDs HMV didn’t sell may have been bought in Tesco and Sainsbury.”
The supermarkets’ online business may also have benefited from the snow, while a shift among shoppers toward better- quality products probably also helped sales. The retailers may give a more muted outlook for this year, as consumers brace for the deepest government spending cuts since World War II.
Tesco, the U.K.’s largest retailer, may say sales at stores open at least a year rose 1.5 percent excluding gasoline and value-added tax in the six-week Christmas period, according to the average estimate of 17 analysts compiled by Bloomberg. Tesco is due to report the figures on Jan. 13, a day after Sainsbury, which may say third-quarter same-store sales rose 3.1 percent on a basis that includes VAT, the estimates show.
Total sales in U.K. supermarkets grew 6.9 percent in the four weeks to Dec. 25 from a year earlier, market researcher Nielsen said on Jan. 7. Growth was led by John Lewis Partnership Plc’s Waitrose, which last week reported a 5.4 percent increase in same-store sales to the close of business on Dec. 23.
Christmas was “acceptably good” for food retailers given “the headwinds that are expected in 2011,” Nielsen said.
Waitrose, Sainsbury and Marks & Spencer Group Plc probably benefited from a shift among consumers toward better-quality products. The “premium retailers” outperformed “more price- value oriented players,” Clive Black, an analyst at Shore Capital in London, said in a note on Dec. 7.
Sainsbury’s shares have outperformed their peers over the past 12 months, rising 20 percent. Tesco has advanced 4.1 percent and Marks & Spencer 3.6 percent in the period.
Marks & Spencer is scheduled to report third-quarter sales on Jan. 11, with analysts predicting same-store sales growth of 3.2 percent in general merchandise and 1.9 percent in food, according to the average of 17 estimates compiled by Bloomberg.
Andrew Wade, an analyst at Numis Securities Ltd., said travel disruption caused by December’s snow prompted him to cut his growth estimate for Marks & Spencer’s general merchandise sales to between 1.5 percent and 2 percent from 3 percent.
Competitor Next Plc said last week that the bad weather reduced sales by 22 million pounds ($34 million). HMV shares plunged more than 26 percent in two days after the entertainment retailer said the snowy conditions hurt sales, while Mothercare said profit won’t meet estimates because of the disruption.
The severe weather contributed to a boost in U.K. online spending as consumers decided against venturing outdoors. Web sales probably increased by 15 percent this Christmas, compared with growth of about 1 percent in total retail spending, according to estimates by Deloitte LLP.
William Morrison Supermarkets Plc, which doesn’t have an Internet offering, today said six-week sales at stores open at least a year rose 1 percent, excluding VAT.
The coming year is likely to be difficult for most U.K. retailers as consumers contend with an increase in the value- added tax rate to 20 percent from 17.5 percent.
“The customer will only spend what they have to spend, yet the retailer has to pay that over to the Treasury,” Andrew Wade, an analyst with Numis Securities Ltd., said by phone. “That will lead to retailers increasing prices.”
Government spending cuts will add to the pressure on consumers and retailers, and may have a disproportionate effect on the north of the country, which is more dependent on state spending and employment, Bubb said.
Consumption may be further restricted should the U.K. raise interest rates. Inflation reached 3.3 percent in November and is forecast by the Bank of England to remain above its 2 percent target through 2011, fueling speculation of that rates may rise.
“The wild card is interest rates,” said Bubb. “As long as they stay low all year we’ll muddle through, but a rise in interest rates earlier than expected could tip the balance.”
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