Morrisons and Tesco emerged as festive retail losers following a sharp decline in sales after what they described as a “very challenging” Christmas for the supermarket sector.
Bradford-based Morrisons reported a worse than expected 5.6 per cent decline in like-for-like sales and warned that profits will fall short of City expectations.
The company said consumers had managed their budgets very tightly and were shopping across a range of formats and retailers.
Industry leader Tesco said like-for-like sales fell 2.4 per cent in the six weeks to January 4.
The latest downbeat figures come amid recent market share gains for discount rivals Aldi and Lidl.
The German discounters both reported “record” trading in the UK over Christmas, heaping the pressure on rivals Tesco, Asda and Morrisons.
Aldi said it recorded its busiest Christmas since opening in Britain over two decades ago and Lidl said it had seen its best performance to date over the festive period.
In a surprise trading update, Morrisons blamed a combination of shoppers failing to trade up from the discounters over Christmas, its lack of online and convenience stores and the proliferation of vouchers offering mass discounts from rivals.
The group hopes to overcome these issues by launching its first online service today, a ramp up in convenience store openings and a new loyalty scheme which it will trial over the next six to eight weeks.
Morrisons’ chief executive Dalton Philips said: “The collector card has served us well, but it’s very basic and is five years old. Our mechanism is not fit for purpose now.
“We’re going to try a new mechanic in the next six to eight weeks. We’ve got 12 million customers, but we don’t have a relationship with them.”
He admitted that the group had not anticipated the strength of online and convenience shopping over Christmas.
“You can see from the winners and losers who was strong in these two areas,” he said.
He estimated that a lack of convenience and online sales knocked 200 basis points off like-for-like sales, which means that sales would have fallen by 3.6 per cent without their impact.
“So there is still a lot of under performance there,” he admitted.
Following the trading update Morrisons said profits will come in at the bottom of analysts’ estimates which range from £783m to £853m.
Its shares closed the day down 7.8 per cent, a fall of 19.7p to 234.5p. Morrisons wasn’t expected to announce Christmas trading figures until January 20.
Cynics said it chose a day of heavy retail reporting to bury bad news.
Tesco’s shares fell 1.2 per cent following its Christmas update, a fall of 4p to 324.5p.
The retailer blamed the weaker grocery market for its latest decline in UK like-for-like sales, although it said it still took £1bn in sales in the five days before Christmas, including its biggest ever trading day.
Tesco said it generated £450m from internet shoppers over the six-week Christmas period, up 14 per cent on a year earlier.
Overall, Tesco said it is on track to meet the City’s profit forecasts of between £3.1bn and £3.4bn for the year to April.
However, the disappointing sales update will increase the pressure on chief executive Philip Clarke’s £1bn turnaround plan for the UK.
Tesco is scrapping more than 100 major UK store developments and focusing growth on convenience stores and its online offering, while also looking to transform stores into family-friendly retail destinations.
Mr Clarke said that with household incomes growing slower than inflation, families feel they have less to spend than they did last year and in previous years.
“While families still treat themselves and parents always want to give their children a good Christmas, budgets remained constrained and optimism around the economy and house prices led to slightly more borrowing on credit cards,” he said.
Analysts at HSBC said: “In the space of 24 hours, the three quoted retailers in the UK have all effectively guided forecasts down.
“This is the worst Christmas we have seen in over 30 years and the trend of the quoted sector losing to the unquoted sector is very firmly established.
“Underlying performances are much worse at Tesco and Sainsbury’s if we just look at core stores.”
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