UK retailers warn of tougher times ahead after Christmas spending splurge

Tesco and M&S enjoyed a 6% to 7% sales boost in recent weeks but both are wary that the cost-of-living crisis will bite soon

Retailers in the UK were boosted as consumers snapped up festive treats despite the deepening cost-of-living crisis. Stock picture

Marks & Spencer and Tesco beat Christmas sales forecasts with food and clothing sales booming but two of the largest British retailers warned shoppers will tighten their belts in 2023.

Tesco and Marks & Spencer posted better than expected Christmas sales as people snapped up festive treats despite the deepening cost-of-living crisis.

Results this week from another big British supermarket, Sainsbury's, showed a similar trend, confounding retailers' worries that Christmas trading would be sluggish given double-digit UK inflation and low consumer confidence.

However, fashion retailer Asos has stumbled post-pandemic after a decade riding the wave of the shift to internet shopping. It said that its revenues were down 3% in the four months to the end of December. 

Asos said cost savings would help drive profits this year after sales fell over its four-month Christmas period, showing the scale of the challenge facing the group's new CEO. 

However, shares in the retailer which had slumped in the past year, climbed as much as 15% in the latest session.

Marks & Spencer, which has about 1,000 UK stores, gained market share and beat expectations with its sales in the four-week Christmas period, posting like-for-like food sales growth of 6.3% and an 8.6% rise in clothing and home sales.

Store sales were a strong point for M&S — it said they grew 12.8% — while click-and-collect orders, where people visit stores to pick up items ordered online, were also up 20%.

Tesco, which is the largest supermarket in Britain, posted underlying sales growth of 7.2% in the six weeks to early January, also stronger than expected.

But both retailers warned of challenging economic conditions ahead as the strain on UK household budgets starts to be felt more keenly when Christmas credit card bills arrive. Tesco chief executive Ken Murphy told reporters: 

We all would expect customers to tighten their belts after Christmas and that's certainly what we have built into the plan this year.

Tesco's chief executive in Ireland, Natasha Adams, said that sales had also been strong despite the cost of the living crisis.  

“In spite of the ongoing inflationary pressures, I am delighted with the very strong performance of the business during Q3 and the festive trading period," she said.  

Outside the Christmas splurge on food and gifts, Britain's retail market is already finding consumers are cutting back. 

British motoring and cycling parts retailer Halfords trimmed its profit forecast, citing softer cycling and tyre demand.

Clothes retailers Next and JD Sports both reported strong festive sales over the last week, while Sainsbury's, No 2 behind Tesco, reported a 5.9% rise in underlying sales for the Christmas quarter. 

• Reuters