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Dire day for UK high street as retailers reveal poor Christmas trading Dire day for UK high street as retailers reveal poor Christmas trading
(about 4 hours later)
Supermarket chain Morrisons was forced to issue a profit warning on Thursday as Tesco and Marks & Spencer also posted disappointing trading over the crucial Christmas period. The dire state of the UK high street was laid bare on Thursday as Morrisons, Tesco and Marks & Spencer unveiled weak trading over the crucial Christmas period.
In an unscheduled statement to the stock exchange, Morrisons said full-year underlying profit would be below market expectations of £812m and would instead be near the £783m mark. In a surprise statement to the stock exchange, Morrisons warned its profits would be at the bottom end of City forecasts. The supermarket chain blamed consumers' lack of spare cash and its lack of a home delivery service and too few convenience stores for a 5.6% fall in sales at established branches in the six weeks to 5 January.
The retailer blamed squeezed consumer spending power and its relative lack of online sales and convenience stores for poor trading, which saw underlying sales fall by 5.6% in the six weeks to 5 January. The chief executive, Dalton Philips, said: "In a very tough market our sales performance over Christmas was disappointing." He said shoppers who would traditionally stock up for Christmas at Morrisons had instead turned to discounters Aldi and Lidl.
The chief executive, Dalton Philips, said: "In a very tough market our sales performance over Christmas was disappointing." Tesco, Britain's biggest supermarket chain, also announced worse-than-expected Christmas sales, which fell by 2.4% in the UK. "Clearly Christmas was disappointing," said the chief executive, Philip Clarke.
Tesco, Britain's biggest supermarket chain, also announced worse-than-expected Christmas sales. In the six weeks to 5 January revenues at stores open a year, excluding petrol sales, fell 2.8%, with UK like-for-like sales down 2.4%. Analysts had expected sales to fall by up to 2%. Clarke said that while online and convenience store revenue had risen, the group's large out-of-town stores had suffered falling sales. He said: "It's tough because the market is tough and consumers are still feeling they don't have as much to spend."
Tesco's chief executive, Philip Clarke, said: "Clearly Christmas was disappointing." Adding to the grim day for big retailers, Marks & Spencer said non-food sales in the three months to 28 December fell below its own expectations. Group like-for-like sales in the eight weeks before Christmas were up 1% but over the past three months they were down.
Tesco said it expected full-year profit "within the range of current market expectations" but shares fell more than 3% in early trading as the company admitted that those expectations had been reduced by between £50m and £150m even from the time of its last update in December. Analysts now expect profits for the group of between £3.16bn to £3.42bn. The finance director, Laurie McIlwee, who is under pressure from shareholders over his handling of profit forecasts, said: "In hindsight we were a little too optimistic at the beginning of December there has been further weakness across the whole of the grocery market which we didn't anticipate." Marc Bolland, the M&S chief executive, blamed unusually warm weather in October for the sales fall and said improved business over Christmas, helped by big discounts, could not make up the lost ground. Turning round M&S's ailing clothing business is Bolland's biggest headache.
Clarke said that while sales online and in convenience stores had risen, the group's large out-of-town stores had seen sales fall. He said: "It's tough because the market is tough and consumers are still feeling they don't have as much to spend." All three bosses are under pressure to revive their businesses while dealing with fierce competition and reduced household spending power. Morrisons is trying to catch up with its rivals in the growth areas of online sales and convenience stores while Tesco is ploughing money into its long-neglected UK stores. Both are losing out to Aldi and Lidl, which have claimed record UK Christmas trading.
He added that Tesco had also taken action to limit price increases in the past six weeks and hinted that Tesco's profit margin of 5.2% might come down. M&S's food business performed solidly but Bolland needs to revamp the group's clothing range, which is losing out to Next, arch-rival John Lewis and high-fashion chains such as Zara.
On a dire day for the UK high street, Marks & Spencer said non-food sales in the three months to 28 December were below its own expectations. Group like-for-like sales in the eight weeks before Christmas were up 1% but over the third quarter they fell 0.2%. Bolland blamed other retailers for starting a price war in December that he said had forced M&S to offer discounts of up to 30% on general merchandise. Debenhams discounted aggressively in the runup to Christmas and unveiled a profit warning last week.
Marc Bolland, the chief executive, said improved performance over Christmas could not make up for falling sales of clothes and other general merchandise in an unusually warm October. Turning round M&S's ailing clothing business is Bolland's biggest headache.
Bolland blamed other retailers for starting a price war in December that he said forced M&S to respond with discounts of up to 30% on general merchandise. Debenhams discounted aggressively in the runup to Christmas and unveiled a profit warning last week.
"Holding our nerve was something we were doing but the market didn't. We were not the first in; we were one of the last.""Holding our nerve was something we were doing but the market didn't. We were not the first in; we were one of the last."
M&S said discounting would reduce its profit margin in general merchandise but that its guidance on full-year performance was unchanged. However, finance director Alan Stewart refused to give a figure for market expectations. M&S said its discounting would reduce the profit margin in general merchandise.
Britain's big retailers face multiple problems – shoppers are buying more online and are making more shopping trips to convenience stores rather than out-of-town superstores. With incomes squeezed by rising prices and stagnant wages they are also taking their custom to discounters such as Lidl and Aldi. Britain's big retailers face multiple problems – shoppers are buying more online and are cutting back on big weekend trips to the supermarket. With incomes squeezed by rising prices and stagnant wages they are spending less and taking their custom to discount chains.
Andre Spicer, a professor at Cass Business School, said: "The big companies have been resting on their laurels. This means while they are trying to change things around the fringe, they may have overlooked the reason that customers go to them in the first place – for good value in the case of Tesco or for quality in the case of M&S."
While John Lewis uses its stores to let shoppers browse, have a coffee and order online, "going into the average Tesco is a depressing experience most people avoid if they can", he added.
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