Britain’s largest retailers kicked off 2023 strongly last week, posting better than expected Christmas sales, signalling the consumer is holding up a bit better than feared.
Tesco’s like for like sales were 7.9 per cent higher, while Marks and Spencer pocketed a 7.2 per cent rise. Sainsbury’s also posted record Christmas sales.
Those bumper numbers, alongside a shock 0.1 per cent GDP rise in November confirmed by the ONS on Friday, indicate some of the worst bets on the UK economy may not materialise.
But, despite the decent set of results, shares of supermarkets Tesco and Sainsbury’s dropped sharply, before rallying at the back end of the week. A similar thing happened to M&S.
Retailers warned of a slow burning spending slump throughout 2023 in their forward guidance last week, prompting traders to look through their upbeat festive performances and instead focus on the year ahead.
The next few months will be tricky as retailers continue to battle cost pressures, higher interest rates and the cost of living crisis squeezing household finances.
“Retailers like a gentle inflation dynamic,” said Neil Wilson, chief market analyst at Finalto Trading, “but the current situation is more disruptive”.
Investment group Shore Capital also warned against too much fourth-quarter optimism due to a “worryingly uncertain” macroeconomic future in the UK.
Frugal consumers might turn their trolleys to discounters Aldi and Lidl, raising concerns over whether the big supermarkets can retain market share.
The likes of Tesco and co may have to lower prices to ‘price match’ to hold onto customers, all whilst dealing with painful input inflation, squeezing margins.
Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown, said discounting is the “elephant in the room”.
With Christmas done and dusted, customers are likely to rein in unnecessary spending or be strapped for cash after forking out on festive expenses.
Attention will turn to the more discretionary retailers Boohoo, WH Smiths and Currys updating markets this week.
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