UK retailers are calculating the cost of a heavy Christmas, with the reluctance of wary consumers to spend much outside the shop on their festive food pushing some of the high street’s vulnerable players to the brink of collapse.
In a flurry of trading updates this week, Tesco, Marks & Spencer and Sainsbury’s reported resilient food sales as customers prioritized spending over the festive season on their Christmas dinners and smaller delicacies such as mince pies and Prosecco.
But the outcome for retailers selling general merchandise — which includes everything from clothing to computer games and jewelry — was markedly worse.
Tough competition, falling customer numbers and weeks of discounts left some winners like Next, and several losers, including fashion chains Primark and Argos, which reported a 1 per cent decline in sales. This could result in weaker chains including jeweler Claire’s Accessories and fashion retailer LK Bennett disappearing altogether.
Consumer spending ahead of Christmas was hit by uncertainty over Britain’s Chancellor Rachel Reeves’ late-November budget and rising unemployment. The picture painted by retail executives this week suggests that many chains were in no rush to spend as of late to save the so-called golden quarter.
“Christmas highlighted the huge divide in retail,” said Nicholas Found, commercial content director at Retail Economics in London. “Food and value-based players capitalized on cautious spending, while non-food is facing the brunt of weak consumer confidence.”
The country’s largest supermarket chains highlighted overall growth in sales and their premium ranges, with consumers keen to buy higher-priced foods for special occasions such as Christmas dinner.
However, their core sales figures have declined due to persistent food inflation. The British Retail Consortium estimates grocery prices were 3.3 percent higher in December than a year earlier.
Despite Tesco and Sainsbury’s reporting sales growth of 3.7 per cent and 3.4 per cent respectively, share prices for both companies fell sharply as investors reacted negatively to evidence of a recession in the most crucial period of the year.
Supermarket executives said consumers will tend to exercise more restraint and eat more healthily at Christmas in 2025. However, above all, they were focused on getting value for money.
“Value remains a key priority as customers look to make their money go further,” said Ken Murphy, chief executive of Tesco, the country’s biggest retailer. “There’s no doubt that consumer sentiment is mixed… You’re seeing consumers whose homes are in pretty good shape and then you’re seeing a lot of people who are really making every penny count.”
The focus on value was also felt at premium grocer Marks & Spencer, which said sales of its entry-level range rose by a fifth in the 13 weeks to December 27, although this was partly driven by range expansion. The retailer’s strong food sales, up 5.6 percent on a like-for-like basis, were partially offset by a 2.9 percent decline in its clothing business.
Penny pinching probably contributed to poor performance in other series. Ironically, Asda, which features the Grinch in its Christmas advertising campaign, saw sales fall 6.5 per cent in December, according to researcher Nielsen IQ.
The private equity-owned supermarket is still suffering from the ill-effects of poor implementation of new IT systems.
Analysts were also impressed by the festive performance of discounter Aldi, which has become the UK’s fourth-largest supermarket chain after years of aggressive expansion.
Clive Black, an analyst at Shore Capital, said that when the positive effects of Aldi’s store openings and inflation were taken into account, its 3 percent sales growth in December meant that its like-for-like sales, a better measure of underlying performance, were in decline.
Trading conditions on Britain’s high streets were even more difficult. The number of consumers visiting shops on high streets, retail parks and shopping centers fell 2.9 per cent year-on-year in December, according to data from researchers Sensormatics and BRC.
That trend particularly hurt Primark, which makes almost all of its sales in its stores. Associated British Foods, owner of fast-fashion chains, described the UK clothing market as “difficult” on Thursday.
While stronger, more diverse retailers may have weathered the storm – like Next, which offset weak sales in its stores with strong growth online – chains that were already struggling hit the buffers over Christmas.
In December the owner of LK Bennett filed notice in the High Court of his intention to appoint administrators to the upscale women’s clothing retailer. The company has appointed consultants to run an accelerated sale process to find a buyer.
Jeweler Claire’s accessories and discount chain The Original Factory Shop fell into administration in the first week of the new year, putting around 2,500 jobs at risk. Troubled investor Modella Capital, which acquired both chains last year, blamed “extremely challenging” trading conditions.
The BRC estimates that store prices, excluding food, were 0.6 percent lower in December than a year earlier. Inflation, weak consumer confidence and higher taxes are “hitting many established and much-loved businesses badly,” the lobby group said.
Retail Economics found that the challenges, which include the continued shift of spending online, were drawing a dividing line between retailers that have managed to adapt and those that have not.
“We are seeing a market that is becoming defined by polarization between retailers with nimble positioning, flexibility in business models and what their target customers value today – and those moving into the market,” he said.
While retailers expect a decline in inflation to boost consumer spending power this year, officials are not budgeting for a strong surge in demand. Spending is likely to be hampered by Britain’s rising unemployment rate, which reached 5.1 percent in December, its highest level in nearly five years.
“I think things are not going to change this year,” Sainsbury’s chief executive Simon Roberts said. “Customers keep a very close eye on what they are spending and we have to make sure we offer the best value in that context.”
M&S chief executive Stuart Machin was one of a number of retailers who vowed to continue investing in product development, even as they faced substantial rises in business rates, recycling costs and National Insurance bills.
“You have to invest,” said veteran retail analyst Richard Hyman. “Given that there has been no growth (in the market), you have to take it from the guy next door.”
