U.K. Scrimps at Department Stores to Fund Holiday Feasts

Updated on
  • Morrison’s like-for-like sales rise 2.8%, beating estimates
  • Supermarkets benefit as department-store spending suffers

A baker places a 'Morrisons Makes It' sticker on to a loaf of bread inside a Morrisons supermarket.

Photographer: Chris Ratcliffe/Bloomberg

Wm Morrison Supermarkets Plc enjoyed a bumper Christmas season as U.K. consumers squeezed by inflation cut back on department-store spending to dress their Christmas tables in style.

The Bradford, England-based grocer’s sales during the holidays beat analyst estimates as consumers splashed out on items from its premium range, including French yule logs and pigs in blankets. The shares rose as much as 4.7 percent early Tuesday in London.

“Consumers are conscious of inflation,” Chief Executive Officer David Potts said on a call with reporters. “Morrison’s customers were very savvy over Christmas, but they also wanted to spend on life’s little luxuries.”

Morrison’s sales growth suggests that the pain from Brexit-fueled inflation was felt more severely in the U.K.’s shopping centers than in its grocery stores over Christmas. Weak holiday sales prompted profit warnings at department-store chain Debenhams Plc and infant-care retailer Mothercare Plc. Another store owner, House of Fraser, is seeking rent reductions from landlords.

Food is a Top Priority

As food prices rose, Brits cut back elsewhere this Christmas

Source: British Retail Consortium

Note: sales data is a 3-month rolling average

On a comparable basis, the country’s overall food sales rose 2.6 percent in the three months through December, whereas nonfood sales fell 4.4 percent, according to the British Retail Consortium. Supermarket sales rose 3.8 percent in the 12 weeks through Dec. 31, with growth led by Tesco Plc, researcher Kantar Worldpanel said.

Essential Items

“With inflation outpacing income growth, shoppers continued to see more of their spending power absorbed by essential items, including food, leaving less left over for buying Christmas gifts,” BRC CEO Helen Dickinson said by email.

Morrison said sales of its premium range rose 25 percent and it held the price on a basket of core Christmas items unchanged from last year, raising prices on other products. U.K. grocers have been wrestling with cost pressure from the fall in the pound since the vote to leave the European Union, which has made imports more expensive.

Same-store sales excluding fuel rose 2.8 percent in the 10 weeks ended Jan. 7, Morrison said in a statement. That beat analysts’ estimate for a gain of 1.8 percent.

Morrison's Resurgence

Under CEO Potts, Morrison is entering its 3rd year of growth

“Food sales are not as vulnerable to a consumer slowdown as clothing, but given the weak trading backdrop, Morrison’s Christmas trading figures are worthy of a cursory round of applause,” Hargreaves Lansdown analyst Laith Khalaf said by email.

U.K. market leader Tesco reports its festive-season sales Thursday, while J Sainsbury Plc gives its update Wednesday.

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