HMV, Morrisons See Weak Christmas Sales As Figures Sound Alarm For UK Retail

HMV, Morrisons See Weak Christmas Sales As Alarm Bells Ring For Retailers

The UK's retail sector showed further signs of stress on Monday, as HMV and Morrisons released disappointing Christmas figures, while data from Visa showed that consumer spending actually fell in December and Deloitte warned that more retailers could go into administration.

Overall spending fell by 1.1% month-on-month and 0.8% year-on-year in December 2011, despite heavy discounting by many stores ahead of Christmas driving up footfall on high streets. All major sales channels saw varying degrees of decline. Face-to-face buying was down 1.4%, while mail and telephone spending and online spending fell by 3% and 0.4%, respectively.

Consumer spending accounts for as much as two-thirds of the UK's total consumption, and is a massive contributor to the economy.

HMV saw like-for-like sales fall more than 8% in the last five weeks of the year, although sales in its newly refitted technology stores were up 51%, offering some hope that the stricken company's new strategy might yet pay off.

Morrisons reported that sales, excluding value added tax (VAT) and fuel, grew 0.7% in the six weeks to January 1, against 2.4% the previous quarter. This fell short of analyst expectations of more than 1%, and came despite the retailer claiming that it had had a record number of customers during the festive season.

The store chain said that it had attracted an extra 800,000 customers per week during the Christmas period. However, major supermarkets have been engaged in a price war, and sales values per customer are likely to have dropped as a result. Tesco and Sainsbury's report later in the week.

“Morrisons' disappointing Christmas shows how weakened consumer confidence has spread beyond the high street to affect larger retailers," Jon Copestake, retail analyst at the Economist Intelligence Unit, said.

"The high street has structural issues to counter such as the growth in online and multi-brand retail. However, larger retailers face growing frugality as fears over employment and the economy grow. Observers are already hinting at an expected fall in Tesco profits later this week, although the performance of retailers such as Sainsbury's and Waitrose has been less of a worry."

The prolonged consumer downturn, precipitated by stagnant wage growth, high inflation and economic uncertainty, has claimed a number of scalps.

The total number of retailers in England and Wales that fell into administration also increased by 11% last year, according to Deloitte, with Barratts, Oddbins, Jane Norman, TJ Hughes, Habitat and Homeform among the high profile casualties in 2011.

Since then, La Senza and Blacks have also indicated that they may do the same, although JD Sports is now understood to be close to a deal] for the latter.

Deloitte warned that more could be on the cards, as companies face their rent and wage bills after a difficult Christmas period.

"Many retailers would have been banking on the busy Christmas period to give them a much needed sales uplift, but retailers were forced into discounting at levels last seen in the aftermath of the collapse of Lehman Brothers, putting severe pressure on margins," Lee Manning, restructuring services partner at Deloitte said in a statement accompanying the report release.

Manning added that although inflation should come down in 2012, giving consumers some respite, it is likely that household spending will remain constrained.


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