Tesco bucks UK holiday retail gloom as smaller stores slump

Bloomberg

In an increasingly tough UK retail environment where the looming threat of Brexit has ground down consumer confidence, the holiday-shopping season was all about survival of the fittest.
Tesco Plc, the country’s biggest retailer, weathered brutal price pressure and a decline in shopper visits better than smaller rivals, posting Christmas sales that beat expectations. But other stores more exposed to the threat of Amazon.com Inc and consumer jitters performed poorly while warning of economic conditions described as “volatile,” or “challenging.”
Shares of Tesco rose as much as 3.3 percent in early London trading after the supermarket operator’s modestly reassuring report. Marks & Spencer Group Plc gained as much as 1.5 percent after its food sales did slightly better than expected, though the clothing business continued to slump.
“It’s definitely a challenging time and you can see customer confidence is down in the data but inside Tesco, I can’t say I’ve seen a change in pattern,” Chief Executive Officer Dave Lewis said on a call.
One of the most troubled UK retailers, department-store chain Debenhams Plc, fell as much as 4.7 percent as sales fell and the company said it was in talks with lenders. Weakness was most pronounced among smaller, more focused retailers like Halfords Group Plc, which sells automotive and bicycling gear.
Its shares slumped as much as 29 percent after a profit warning. Another retailer exposed to weak traffic on the UK’s shopping streets, Card Factory Plc, fell as much as 18 percent after warning of a difficult year ahead.

Morrison, Sainsbury
The latest reports followed downbeat updates from grocers Wm Morrison Supermarkets Plc and J Sainsbury Plc earlier this week and a profit warning from online clothing seller Asos Plc over the holidays, followed by a surprisingly robust performance at clothier Next Plc. A series of retailers confirmed that consumer confidence is weak as the country prepares for Brexit, and that’s compounded the damage from a rise of online shopping that’s emptied storefronts across Britain.
Tesco has used its scale to keep down prices and appeal to budget-conscious shoppers who’ve been defecting to discounters Lidl and Aldi. Morrison and Sainsbury also cited pressure on pricing as consumers hunt for bargains amid worries about what Brexit holds in store.
Grocer and department-store operator John Lewis Partnership Plc posted sales that were better than those of rivals, but only after a tough year and helped by deep discounts. It warned that profit will fall substantially and that conditions for the UK’s shopping districts will remain challenging.
“Two main factors are affecting the retail sector — oversupply of physical space and relatively weak consumer demand,” Chairman Charlie Mayfield said in a statement.