Tesco Plc and Marks & Spencer Group Plc underwhelmed investors Thursday with their Christmas sales updates, wrapping up a mostly downbeat holiday season for U.K. retailers.
Shares in both companies declined after Tesco’s sales fell short of analyst expectations and M&S warned that its turnaround would take time to bear fruit amid weak consumer sentiment, even after Christmas trading was slightly above estimates.
Here are five things we learned from U.K. retailers’ holiday reports.
1. British consumers remain skittish
Brexit-induced inflationary pressure is easing, Tesco Chief Executive Officer Dave Lewis said. But department-store chain John Lewis said higher sourcing costs are squeezing margins and M&S CEO Steve Rowe described consumer sentiment as “fragile” and “volatile.” Debenhams Plc provided evidence of that last week, while even relative winners over the holiday period like apparel chain Next Plc were hardly crowing about their results.
2. Amazon looms large
Britons did a lot of their Christmas shopping online, limiting trips to the country’s “high streets.” Department stores like Debenhams and House of Fraser, with relatively underdeveloped online businesses, are struggling to compete with the U.S. digital giant. So are the likes of Mothercare Plc, which plunged after warning that profits would be well below expectations, laying bare its inability to set itself apart from the e-commerce emporium. Next, which gets 40 percent of its sales online or from mail orders, had a better Christmas.
3. Food is outperforming general merchandise
Even facing a squeeze from Brexit, Britons still wanted to deck out their holiday tables in style, even if it meant wearing last year’s Christmas sweaters. Wm Morrison Supermarkets Plc had a strong holiday season — not surprising, given that it’s less exposed to general merchandise than some of its rivals. J Sainsbury Plc’s Argos saw sales fall even though the company managed to increase merger-related synergies from its acquisition of the catalog retailer.
4. Investors are picky shoppers, too
Tesco and M&S both fell Thursday, capping a reporting period in which investors saw more half-empty glasses than half-full ones. Tesco’s report was a genuine disappointment, with Christmas sales falling short of analyst expectations. M&S was a mixed bag, but investors want to see more evidence of a turnaround before putting their money behind Rowe and his new team. For the likes of Debenhams, It’s a long wait till next Christmas.
5. When all else fails, blame Brussels (sprouts)
Discounters continue to make inroads with price-sensitive U.K. consumers. Germany’s Lidl said U.K. sales rose 16 percent over the holidays as shoppers snapped up its mince pies and prosecco. M&S tried to avoid discounts on food, which caused it to lose out on some potential sales of vegetables. “On some of the more value products, where there isn’t a big M&S difference, we have to get sharper on prices,” Rowe said on a call. “We didn’t do well on Brussels sprouts — which gives you an idea of where the consumer is on their spending habits.”