Retailers suffer the worst December since recession of 2008
The supermarket seems to be pinning its hopes on a merger with Asda after missing out on grocers’ Christmas bonanza
RETAILERS have suffered their worst December since the recession after shoppers delayed spending and abandoned the high street to hunt for bargains online.
Last month’s trading was as tough as in 2008 when the high street was battered by the credit crunch, according to sales figures compiled by the British Retail Consortium and KPMG. It comes as official statistics show the savings ratio for UK households has reached minus 0.2pc, suggesting families are outspending their earnings, and despite record low unemployment and improving wage growth.
Weaker balance sheets may be making households increasingly price sensitive, with lenders reporting that they expect demand for credit-card lending to decline in the final three months of the year.
Overall, retail sales were stagnant, with 0pc growth in December, compared with a rise of 1.7pc in the same month in 2017. Yet on a like-for-like basis, sales fell by 0.7pc compared with the same month in 2017.
Paul Martin, UK head of retail at KPMG, said: “This comes despite some retailers desperately attempting to generate sales through slashed pricing, which has seemingly not been enough to encourage shoppers.”
Food purchases outperformed items such as clothes and shoes, with sales rising by 0.6pc in the three months to the end of the year on a like-for-like basis, contrasting with a 1.2pc slide in non-food retail.
The rise of online shopping continued apace, with its share of sales hitting 31.2pc last month, up from 29.1pc in December 2017.
The grim shop figures follow complaints by supermarket bosses that shoppers waited until the very last moment to do their Christmas shopping.
Sainsbury’s boss Mike Coupe said yesterday it had been hurt by a “downtrading” trend, with shoppers targeting cheaper options.
The supermarket posted a 1.1pc drop in like-for-like sales after its Argos business lost customers to the deep discounts offered by rivals.
High street retailers with a sizeable online presence have been outperforming their bricks-and-mortar rivals.
Marks & Spencer, Debenhams, John Lewis and Tesco will today reveal how they fared.
‘Christmas came late this year”, according to Sainsbury’s boss Mike Coupe. Or, in the case of Britain’s number-two supermarket, it didn’t come at all. Sainsbury’s finished firmly bottom of the pile over the festive trading period, reporting a 1.1pc fall in like-for-like sales, much worse than the 0.2pc drop analysts had pencilled in. These are worrying figures but perhaps more concerning is Coupe’s attempt to blame “cautious customers”. Try telling that to his rivals, all of whom, bar Waitrose, posted better numbers.
Although it was the worst Christmas for the high street in a decade, food retailers bucked the trend and had a festive feast. A record £30bn was spent on Christmas food between the beginning of October and the end of December – £450m more than same period in 2017. The average household grocery bill was a whopping £383 in December alone and Saturday the 22nd proved to be the busiest shopping day of the year. More than half of all households visited one of the grocers on that day, with 1.7m additional customers hitting the supermarkets compared with the Saturday before.
And there was certainly no caution being shown in the aisles of Aldi or Lidl. Two thirds of UK households shopped at the German discounters in the weeks to Dec 30, handing them their biggest ever slice of grocery shopping – a combined market share of 12.8pc. Sales were up 10.4pc at Aldi, handing it the crown of the fastest-growing supermarket, while Lidl experienced growth of 9.4pc.
While market share slipped at all the major supermarket chains, Sainsbury’s was the only one to post falling sales, capping a thoroughly miserable Christmas. Even its general merchandise arm, supposedly boosted by the £1.4bn takeover of Argos, flopped with a 2.3pc sales decline.
Coupe, meanwhile, has been left talking up the success of the chain’s £9 turkey crowns and 30p vegetables. Perhaps its new customer feedback channel – “Lettuce Know” – will give management a better idea of what’s gone wrong.
It says a lot about Sainsbury’s that its hopes increasingly seem to rest on a £11bn mega-merger with Asda. There is no doubt that the tie-up will create a formidable new player – Coupe says it will put a rocket under profits, boosting the bottom line by £500m – with far greater muscle to combat the relentless threat of the discount kings and the growing challenge from digital competitors such as Amazon and Ocado.
Still, that’s no reason to think it will get past the competition authorities. The deal would leave between 50pc and 60pc of the market concentrated in the hands of two supermarkets – Tesco and Sainsbury’s/Asda. The Competition and Markets Authority will surely have grave concerns over the creation of a duopoly with such a stranglehold over the food on people’s tables. Customer choice can only suffer.
Equally worrying is the impact it will have on small suppliers. Coupe has pledged to slash prices on key products by 10pc, mostly by negotiating better terms with the 100 biggest suppliers, but the idea that the smaller ones will be spared simply isn’t credible.
Of a combined 5,500 suppliers that sell goods to Sainsbury’s and Asda currently, nearly half are small businesses at the mercy of a much more powerful beast, and the grocery industry has a poor track record when it comes to the treatment of suppliers.
There have been two major inquiries in recent times into this area. A Competition Commission probe in 2000 created of a code of practice but failed to prevent a wave of complaints about the exploitative behaviour that was putting many small shops out of business. Eight years later, a second inquiry concluded that further action was needed to protect those small businesses that kept the shelves stocked with goods.
Jobs will undoubtedly be lost as a result of the merger, and shareholder value could also take a serious hit from the complex integration that will have to take place.
Sainsbury’s and Asda both face huge difficulties if the merger doesn’t go through, but that doesn’t mean it should happen. Many of their problems are self-inflicted and the pair seem short on ideas.
‘Sainsbury’s finished bottom of the pile over the festive trading period’