Retailers hope for a happy new year after strong festive sales

IF there is one universal message from the festive sales updates over the past week, it is that retailers have done surprisingly well.

Stores across the board appear to have enjoyed a solid Christmas despite the recession as shoppers decided to forget their troubles and treat themselves.

While the weakest player appears to be Marks & Spencer with like-for-like sales growth of 0.8 per cent over the festive period, this is still the first growth at M&S in more than two years.

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So how come so many retailers have done so well? Normally you would expect weaker players to lose customers to more successful rivals.

Justin King, chief executive of Sainsbury's, says that retailers that have survived this far are benefiting from the demise of others.

"Woolworths has ceased to exist and that has presented retailers with an opportunity," he says. "Threshers has also now gone and this represents a growth opportunity for those of us left."

Indeed Sainsbury's sold over a million bottles of its "Taste The Difference" cava over the festive period – a good example of people treating themselves without damaging their bank balances. With the demise of Thresher's, many shoppers are stocking up on wine when they do their weekly supermarket shop.

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Sainsbury's has been joined by clothing chains Next, New Look, JD Sports Fashion and department chain House of Fraser in reporting improved sales over Christmas.

Fashion and homewares group Next saw a rise in like-for-like sales – up 1.6 per cent – for the first time in four years, boosted by cold weather and better ranges, and lifted its 2009-10 profit forecast.

But despite the good festive season, retailers are bracing themselves for a tough 2010.

While we may technically come out of recession early this year, fears of higher taxes, increasing unemployment and a private sector pay freeze will hit consumer spending as the year progresses. Next has warned that 2010-11 profits could be flat.

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Chief executive Simon Wolfson said: "One way or another the Government has got to reduce spending or increase taxation over the next four years by a significant amount.

"My guess is that we'll see the hardest hit early," he said, referring to expectations for tax rises and spending cuts soon after the General Election.

Next's combination of strong trading results and caution for the future echoed comments from department stores group John Lewis, which reported an impressive 15.8 per cent rise in sales in the five weeks to January 2, but forecast "a long slow recovery" in 2010.

Some of the non-food retailers' recent success can be attributed to shoppers bringing forward purchases ahead of a rise in VAT sales tax on January 1, which suggests that sales could slow down rapidly in coming months.

Both M&S and Sainsbury's are wary about 2010 trading.

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"We don't see any improvement in the economic backdrop," said Mr King at Sainsbury's.

M&S chairman Sir Stuart Rose said he doubted there would be any growth in British retail sales this year and the climate is likely to "get tougher".

"We know that we have got some medicine coming," he said. "You'd be a fool if you didn't think it was going to get harder.

"There is the prospect, whoever is in power in the mid-part of this year, of some really stringent measures coming in to bring down the deficit," said Sir Stuart.

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Some analysts believe the spending slowdown could come as early as this month.

"From mid-January onwards we are expecting a spending lull to set in that will test the resilience of some of the weaker retailers," said Experian retail director Jonathan De Mello.

Book chain Borders collapsed at the end of last year, closely

followed by Scottish clothes chain D2 which has been forced to call in the administrators.

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While the big names appear to be riding out the recession, analysts believe we could see some more retail collapses once the New Year sales are over.

How retailers fared over christmas

Sainsbury's like-for-like sales rose 4.2 per cent in the 13 weeks to January 2

Marks & Spencer's UK like-for-like sales rose 0.8 per cent in the 13 weeks to December 26

John Lewis's sales up 15.8 per cent in the five weeks to January 2

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Waitrose's sales rose 16.1 per cent in the 13 weeks to December 26

Asda said it had a "solid" Christmas, including its busiest day on December 23

Next's like-for-like store sales rose 1.6 per cent in the 22 weeks to December 24

House of Fraser's like-for-like sales rose 7.1 per cent in the eight weeks to January 2

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Co-operative Group's like-for-like sales rose five per cent in the three weeks to January 2

Majestic Wine's like-for-like sales rose 11.7 per cent in the nine weeks to January 4

New Look's like-for-like sales rose 5.9 per cent in the 14 weeks to January 2

JD Sports' like-for-like sales rose 6.6 per cent in the five weeks to January 2

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Ocado's like-for-like sales rose 30 per cent in the four weeks to December 26

Blacks' like-for-like sales rose 15.2 per cent in the six weeks to January 7

Brighthouse's like-for-like sales rose nine per cent in the 13 weeks to December 24

Poundland's like-for-like sales rose 4.4 per cent in the five weeks to January 3

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