U.K. Retail Christmas Losers Emerge as Shopper Habits Change

Three of Britain’s biggest retailers emerged as casualties of the Christmas season as consumers pared spending on everything from food to clothing, while changing their shopping habits to seek convenience.

Tesco Plc (TSCO), Marks & Spencer Group Plc (MKS) and William Morrison Supermarkets Plc (MRW) all reported reduced sales, with Morrison saying that profit will be at the low end of estimates. Morrison shares fell as much 7.3 percent and Tesco traded as much as 4 percent lower, though M&S advanced as the retailer said sales patterns improved as the holiday neared.

While supermarkets were squeezed between the advances of discounters and more upscale chains, clothing retailers such as M&S had to start discounting before Christmas in an effort to sway shoppers prepared to leave their shopping until the last minute to get a bargain. Consumers also turned more toward online channels, boosting those with a strong multi-channel offering, while hampering those without one such as Morrison.

“None of the retail reports today are pretty,” said Richard Marwood, who helps oversee more than $700 billion in assets at Axa Investment Managers. “Investors did not have high expectations for any of the companies that have reported, but today could still be testing.”

Photographer: Simon Dawson/Bloomberg

An employee restocks yogurts in the refrigerated section of a Morrisons M Local store, operated by William Morrison Supermarkets Plc, in London. Close

An employee restocks yogurts in the refrigerated section of a Morrisons M Local store,... Read More

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Photographer: Simon Dawson/Bloomberg

An employee restocks yogurts in the refrigerated section of a Morrisons M Local store, operated by William Morrison Supermarkets Plc, in London.

Tesco, the U.K.’s biggest retailer, said U.K. same-store sales fell 2.4 percent, excluding gasoline and value-added tax, in the six weeks ended Jan. 4. That missed the median of 13 estimates in a Bloomberg News survey for a 2.2 percent.

Reduced Estimates

While full-year earnings should be within the current range of analyst estimates, that range has fallen since the Cheshunt, England-based company last updated the market, Chief Financial Officer Laurie McIlwee said on a conference call today.

Clive Black, an analyst at Shore Capital, said he expects to marginally reduce profit estimates again for Tesco because of the weaker-than-anticipated U.K. sales.

Tesco and Morrison have seen their share of the grocery market slip over the past year as more shoppers have turned to discounters Aldi and Lidl and upscale Waitrose shops.

“What we have seen in the sector is that 11 months of the year, customers who are loyal discount shoppers then trade up in December,” Morrison Chief Executive Officer Dalton Philips said in an interview today. “We didn’t see that trade-up this year.”

‘Strong Online’

Morrison, the smallest of the U.K.’s four main grocery chains, said sales at stores open a year or more fell 5.6 percent in the six weeks ended Jan. 5, excluding gasoline. Underlying operating profit for the year about to end will be toward the bottom of a cited 783 million-pound ($1.29 billion) to 853 million-pound range, the grocer said.

In addition to the expansion of the discounters, business at Morrison was hurt by the lack of an online grocery offering as more consumers purchased holiday provisions over the Web. The retailer is due to commence an online service tomorrow as part of an alliance with Internet-grocer Ocado Group Plc. (OCDO)

“The accelerating channel shift to both more online shopping and more convenience-store shopping is causing problems for even the best-equipped operators in the supermarket industry and it is crucifying those left behind, like Morrisons,” said Nick Bubb, an independent retail analyst in London.

Morrison also cited targeted coupon offers by competing chains for its “disappointing” Christmas performance.

Price Cuts

Marks & Spencer reported a 10th straight quarter of falling clothing sales, largely because of a steep decline in October when mild weather caused shoppers to delay purchases of coats and sweaters. Same-store sales in the general-merchandise unit rose 0.5 percent in the eight weeks ended Dec. 24, partly because of discounting by the retailer ahead of Christmas.

Marks & Spencer cut prices on some items by as much of 50 percent before the holiday, responding to competitors such as Debenhams Plc (DEB), which last week forecast a slide in profit after weak sales left it with a backlog of inventory to clear.

The U.K. gross margin for the year will be broadly unchanged from a year earlier, with weaker general merchandise profitability because of promotional activity offset by gains in the food division, M&S said.

“Compared to some other announcers today, they sound in control,” Shore Capital’s Black said of M&S. “Expectations were also mellow going into this update.”

The shares rose as much as 3.8 percent to 461.8 pence.

Rival clothing retailer New Look Retail Group Ltd. said today that U.K. same-store sales rose 1.5 percent in the seven weeks ended Dec. 28.

To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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