Festive season sales slump leaves bad taste for M&S
MARKS & Spencer is set to lose the battle of the Christmas aisles as its struggling food arm posts its worst festive performance for a decade.
M&S’S upmarket food division used to be its growth engine, but analysts believe the chain continues to lose customers to rival supermarkets and the discounters.
As a result, the City is pencilling in a fall in like-for-like food sales of between 2pc and 3.5pc, the worst result since the recession.
It follows a torrid year for retailers, which started with the collapse of Toys R Us and culminated in the demise of HMV. High street sales have been the worst on record, according to accountants BDO, confirming a warning from Sports Direct’s Mike Ashley in the runup to Christmas that retailers were being “smashed to pieces” by “unbelievably bad” trading.
M&S will be hit further by falling sales in its clothing and home departments, which are forecast to drop further by between 1.6pc and 4pc.
The retailer recently hired Stuart Machin from Steinhoff to revive its fortunes in food with a strategy to curb discounting in favour of reducing overall prices. However, this has yet to translate into a sales boost.
Dave Mccarthy, analyst at HSBC, said it had not been a vintage year for food retailers. He said discounters are “sucking out all the growth”. The “Big Four” supermarkets rely on shoppers “trading up” over Christmas, but Aldi and Lidl’s premium ranges have meant they have not enjoyed the usual lift over the festive period.
Tesco is expected to be the winner out of the major grocers. Analysts are forecasting a 0.5pc rise in like-for-like sales, although last year Britain’s biggest retailer was hit by lost tobacco sales following the collapse of wholesaler Palmer & Harvey.
Sales at Morrisons are expected to be flat, although the Bradford-based grocer has a track record of surprising the City.
Sainsbury’s is tipped to be the worst of the Big Four with a 0.4pc drop in retail like-for-like sales as sales growth at Argos fails to offset flagging grocery and clothing sales.
An upbeat festive performance by Next last week cheered the sector. However, unlike many of its bricksand-mortar rivals, its booming online business is cushioning it from sliding store sales.
M&S makes just a fifth of its sales online and is heavily exposed to dwindling store footfall.
Sales at embattled department store chain Debenhams also went backwards over Christmas, despite relentlessly discounting throughout November and December. Analysts expect a drop of around 2.5pc in sales, although the retailer has so far defied fears it would issue another profit warning.
Although the slump is smaller than some corners of the City predicted, it will fail to allay concerns that Debenhams can overcome a badly bloated balance sheet.
“Being a little bit better over Christ- mas doesn’t mean much if you’re not making much money,” said Tony Shiret at Whitman Howard.
The department store will face a grilling from investors on Thursday at its AGM, just a month after major shareholder Mr Ashley offered Debenhams an emergency loan.