By Kate Holton and Paul Sandle
LONDON (Reuters) - British retailers endured their worst Christmas since the depths of the financial crisis a decade ago as cautious customers forced high street stores such as John Lewis and Debenhams to slash prices to shift stock.
With parliament in deadlock less than three months before Britain leaves the European Union, consumer spending is fading fast, exposing the weakness of many major retailers who are having to work ever harder to win sales and also adapt to the migration to online shopping.
Many Britons reined in their spending in November before leaving it late to shop for Christmas gifts in December.
"This comes despite some retailers desperately attempting to generate sales through slashed pricing, which has seemingly not been enough to encourage shoppers," said Paul Martin, a partner at accountants KPMG.
Trading updates released on Thursday showed that Marks & Spencer (L:MKS) suffered another quarter of falling underlying sales in both clothing and food, while department store Debenhams (L:DEB) is looking for fresh funding after its sales tumbled.
John Lewis, the employee owned biggest department store, said demand for beauty products and women's clothing had enabled it to nudge up sales but its gross profit margins remained under pressure in the "intensely competitive pricing environment".
"I would say that on average the promotional activity was something in the region of 20 to 30 percent higher than last year," Paula Nickolds, managing director of John Lewis department stores, told reporters.
Debenhams (L:DEB) Chief Executive Sergio Bucher said the country's second biggest department store group would have to find another 80 million pounds of costs to cut in order to protect its profits after slashing prices.
"The market in general has been very, very competitive," he told reporters. https://tmsnrt.rs/2H2WRhy
TESCO STANDS FIRM
Tesco (L:TSCO), Britain biggest retailer, emerged as one of the few winners from the festive period after its own-brand basic ranges combined with premium offerings to fend off rivals at the top and bottom of the market, and keep its tills ringing.
It attracted 125,000 more shoppers to its stores this Christmas than last, with December 23 the busiest Sunday in Tesco's history. In just one hour it served 766,000 customers.
The solid performance stood in contrast to rivals Sainsbury's (L:SBRY) and Morrisons (L:MRW) which both missed Christmas sales forecasts this week, hit by competition from German discounters Aldi and Lidl.
Richard Hunter, head of markets at Interactive Investor, said Tesco had defied the retail gloom, but even it will need to continue to perform strongly to maintain its market rating.
"Prospects for the UK economic environment remain nebulous, with a nervous consumer potentially looking to shop on price alone," he said.
Britain's economy slowed after the 2016 Brexit referendum and looks to have lost more momentum in late 2018 as Prime Minister Theresa May struggles to get parliament's support for her plan for a smooth exit from the European Union.
The British Retail Consortium (BRC) said its members reported zero year-on-year total sales growth in December, the worst performance for the month since 2008. The flat figure compared with 1.4 percent growth in December 2017.
One of the worst performers was the bicycles-to-car parts retailer Halfords (L:HFD) which cut its profit forecasts. Its shares fell 25 percent.