British stores count cost of subdued Christmas

The final verdict on Christmas trading in Britain was delivered today as high street stalwarts Boots and WH Smith rounded off the season for sales updates.

Analysts said the retail sector had suffered a poor festive period, but the success of many stores in tough conditions put a question mark against the claim by the British Retail Consortium that this was “the worst Christmas for 10 years”.

Supermarket giant Tesco proved to be one of the season’s top performers with like-for-like sales growth of 7.6% as shoppers warmed to its combination of low prices and the convenience of shopping in superstores.

In contrast, profits downgrades came almost exclusively from the high street where Marks & Spencer, Peacock, Woolworths and Poundstretcher owner Brown & Jackson predicted a shortfall.

Clothing retailer Next also cut its internal profits forecasts by £5m (€7.2m) after too much stock was carried into its end-of-season sale and menswear disappointed.

Boots bucked this trend on the high street by reporting a 2.6% rise in same-store sales today on the back of strong demand for its gift ranges, but one analyst said this was a “tactical rather than a strategic success”.

WH Smith ensured there was no repeat of its troubles of last Christmas by avoiding unprofitable promotions and negotiating better deals with its suppliers. Although sales eased 1% in the six weeks to January 15, it achieved a a “material improvement in profitability”.

Barclays analyst Henk Potts said the British consumer could no longer be relied upon to shop on the high street, with one-stop shopping and convenience foremost in their mind.

This explained not only the success of Tesco but also the trend of people using the Internet to buy Christmas gifts or making trips to out-of-town retail parks, he said.

According to Baird analyst Paul Smiddy, the trading updates did not support the view that this was the worst Christmas for the retail sector for a decade.

Companies with strong brands, an effective supply chain and stable management had performed steadily and specialists such as Topps Tiles reported the fastest growth, he said.

The timing of Christmas this year posed a major headache with a late rush in the final week heaping pressure on suppliers to ensure in-demand items reached stores on time.

The potential for sales to go awry because of supply shortages was underlined by computer games retailer Game which saw UK sales plunge more than 20% after being forced to trade for half of the run-up to Christmas with no PlayStation 2 consoles in its stores.

Digital products such as cameras, music players and televisions headed the list of popular products at Christmas, but contrasting assessments were given of the market for DVDs, jewellery and books.

Clothing retailers found the going tough with the exceptions of fashion chains including New Look and Monsoon which spotted the trend of design-conscious women for ponchos, gilets and garments with fur trims.

Analysts do expect the tough trading environment to improve dramatically over the next 12 months, with slowing house price inflation and recent rises in interest rates encouraging people to rein in spending.

“The consumer is not going to get more excitable in a hurry and competition for what spending is available will intensify,” Mr Smiddy said.

John Stevenson, of Shore Capital, said retailers were in for “a tough year” as higher wage bills and overheads eat into their profits.

Many high-street names stripped costs out of their businesses to protect margins this Christmas, but this would be a difficult feat to repeat in 12 months’ time, he said.

“If we have a similarly subdued Christmas next year then the level of downgrades will be significantly greater,” Mr Stevenson added.