UK shoppers are freely enjoying food, drink and clothing for Christmas as they enjoy their first Covid-free celebration since 2019.
Britain’s largest retailer Tesco and rival Marks & Spencer reported positive Christmas sales in terms of people’s spending despite a generally bleak economic outlook. Tesco recorded its biggest day of sales on Dec. 23, supermarket group CEO Ken Murphy said.
UK sales rose 7.2% in the six weeks to January 7, according to Tesco, as shoppers diligently searched for cheaper items.
Mr. Murphy said shoppers are buying more private label products and more frozen food (up to 25%), and are choosing Finest’s premium range as an alternative to restaurant or takeaway dining.
He acknowledged that some are moving to discounters like Aldi and Lidl, but said Tesco is buying them from other retailers.
Marks & Spencer said food sales were up 6.3 percent and overall sales were up 10.2 percent, with sales of household items also up and clothing sales hit their highest level in seven years. Like Tesco, M&S said it is seeing increased demand for both budget and premium products.
CEO Stuart Machin said that stores outperformed the grocery market for the second consecutive year in both volume and value. “After two years of Covid disruptions, customers have been enjoying home entertainment,” he added.
But both retailers remain wary of the overall economic climate and cautious about their earnings forecasts. Mr Murphy said Tesco expects customers to tighten their belts a bit after Christmas and New Years and warned of further inflation.
Mr Machin said Marks & Spencer is looking into a cut to save around £150m over the next two years to help offset inflation.
Both retailers’ results followed those of Sainsbury’s, which said earlier this week that holiday season food sales – for the six weeks ending January 7 – were 7.1% higher than a year earlier as shoppers “all gathered for a big Christmas dinner. .
Sainsbury CEO Simon Roberts said households were managing their budgets differently, organizing larger gatherings after two years of lockdowns and eating at home rather than going out.
“Customers shopped early, bought Christmas treats and sparkling wine more than once, and looked for great deals on Black Friday and other seasonal deals,” he said, highlighting the record sales of champagne and prosecco during the holiday period.
The product was strong ahead of the World Cup. Shoppers also purchased more energy-related items such as deep fryers, clothes dryers and electric blankets.
All major supermarkets are forced to invest millions to keep their prices on par with their discount competitors Aldi and Lidl. Tesco has already extended its price range until April. At the same time, they also need to raise the salaries of their staff, otherwise they risk losing staff. Tesco and M&S’s earnings forecasts were more cautious than their sales data.
Because the biggest increase in demand in the Christmas business came from Aldi and Lidl, both of which were able to post more than 20 percent sales growth.
According to retail data analyst Kantar, Lidl’s overall market share rose from 6 percent in January 2022 to 7.2 percent in the three months before Christmas. This places it just behind rival German discounter Aldi and the sixth largest supermarket chain in the UK.
Fierce competition among supermarkets was driven by rising food prices, which hit a record high in December. According to the British Retail Consortium (BRC) and Nielsen, annual inflation in grocery stores rose to 13.3% in December from 12.4% in November. The BRC said this was the highest monthly figure since data collection began in 2005.
AJ Bell investment director Russ Mold said supermarkets are either ditching sales volume or pricing and margins to keep their customers out of the way.
He said the recent updates on Super Thursday look positive for retail stocks. “So far, retailers seem to be doing better than they feared, with a few notable exceptions,” he said. “How far you extrapolate this resilience depends on your assessment of whether households experienced the worst effects of rising bills and interest rates.
“With many people still taking out cheap, fixed-rate mortgages, and with more increases in energy consumption on the horizon, there is certainly no reason for complacency.”
Online retailers have already figured this out. Online fashion giant Asos gave investors a less optimistic message in their latest update. The fast fashion company said its UK sales for the four months ended December 31 were down eight percent year-over-year, citing “weak consumer confidence”.
Strikes at Royal Mail and a “delivery market disruption” in December, which led to earlier Christmas and New Year mail, impacted holiday sales.
According to the latest IMRG Online Commerce Index, which tracks the online sales of 200 retailers, online sales growth slowed in December, the lowest since March, when the rate was still affected by the lockdown. Christmas numbers surpassed what the company called “arguably the busiest year for online retail, with -10.5% growth in 2022 – the lowest ever for the year and negative for the first time.”
The average cost of goods purchased increased from £121 in 2021 to £134 in 2022, higher due to inflation. As prices have risen, an online site’s conversion rate — the percentage of visitors who make a purchase — has sometimes been 20 percent lower over the past year than in comparable periods in 2021.
Andy Mulcahy of IMRG said: “Retail is a trust game. When people are comfortable with their finances and have some disposable income each month, retailers often see this in the overall demand pattern. It was a really bad year.
“However, the highlight is that retail traffic continues to grow even after the massive outbreaks of the pandemic. So once the overall economic slowdown starts to ease, retailers should be able to take advantage of the fact that people are still eager to browse and buy products. The problem is that many expect 2023 to be another difficult year, and the first half of it, in particular, will not offer any respite.”
Following the announcement of a drop in earnings, Asos said it had already launched a £300m package of “profit optimization and cost containment measures”. These moves will lead to a “modest improvement” in profitability this year.
Source: I News
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