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Recession fears fall as M&S and Tesco boom over Christmas

Retail giant Marks & Spencer hailed strong Christmas trading as it revealed record food sales and its highest clothing and home market share for seven years (PA) (PA Wire)
Retail giant Marks & Spencer hailed strong Christmas trading as it revealed record food sales and its highest clothing and home market share for seven years (PA) (PA Wire)

FRESH hope that the UK could narrowly avoid a recession arrived today in the form of bumper Christmas trading figures from both Tesco and Marks & Spencer.

While that could indicate a last splash-out before austerity bites, the numbers are strong enough to suggest consumers are more resilient than feared.

Tesco said like-for-like sales rose by 5.3% over Christmas, while M&S grew by 7.2%.

Both argue they are now in a strong position to compete with the discount retailers Aldi and Lidl, offering budget ranges and more luxury goods for when people are celebrating.

The “trading down” that is occurring sees customers eschew restaurants in favour of a nice night in, Tesco chief Ken Murphy suggests.

He said: “We are in the strongest value position for many years. Customers don’t have to compromise to shop with us. We are seeing customers express a sentiment of cautious optimism. Customers are weathering the storm. I think the recession will be a little shallower than people were expecting.”

The latest GDP figures, for November, come tomorrow with City economists beginning to think they might be better than the 0.3% fall pencilled in.

At M&S, CEO Stuart Machin said customers are nimble, trading down when looking to save money and up when wanting to have a party.

“We planned for strong demand (for top tier) and we sold out most of our collection lines,” he said.

Both companies confirmed full year profit guidance. Yesterday Sainsbury was able to give an uplift to forecasts.

M&S said: “There are clear macro-economic headwinds ahead and underlying cost pressures, but our strong trading performance provides confidence that the results for the year will be consistent with the guidance set out at the Group’s interim results in November”.

Yesterday the City watchdog warned that more than 750,000 households are in danger of defaulting on mortgages over the next two years as inflation bites and interest rates rises send borrowing costs soaring.

Retailers hope that inflation may already have peaked. Murphy said: “We would hope that by the middle of the year it will have peaked and then we will see it come down the other side.”

He noted that customers tightening their belts after Christmas is usual, rather than a sign of an inevitable downturn coming.

Both businesses have been reborn off late after turbulent periods – M&S in particular.

Walid Koudmani at online investment platform XTB.com said: "M&S Food results showed the company outperforming some competitors in the market as the company managed to capitalise on the key four-week Christmas period for the second year running and reached its highest ever recorded market share. Meanwhile, the clothing and home divisions managed to have another positive performance, while maintaining market leadership with the highest market share in seven years.”

Tesco and Sainsbury seem to have done a good job of fending off Aldi and Lidl.

Melissa Minkow, Director, Retail Strategy at CI&T, said:

“Both supermarkets have effectively switched up their positioning by price matching, placing them closer in alignment with some of their low-cost competitors - a smart move, but one that may impact brand perceptions long-term.”

Tesco shares were steady at 244p. M&S shares slipped slightly at 142p.