M&S and John Lewis Join Other U.K. Retailers in Christmas Doldrums

(Bloomberg) --

U.K. retailers’ holiday sales were hit by brutal price pressure and the shift to e-commerce, rounding out their worst year on record.

Marks & Spencer Group Plc, Tesco Plc and John Lewis Partnership Plc provided further evidence of the tough climate facing the country’s department stores and supermarkets with generally downbeat Christmas sales updates.

The latest reports confirm fears that U.K. retailers would suffer as discounters, the rise of online shopping and political turmoil took their toll. The British Retail Consortium, a trade group, said the 0.1% drop in the industry’s revenue in 2019 was the worst performance it has recorded.

M&S shares fell as much as 11% after it said gross margins will be around the lower end of its guidance for the year after holiday sales at the long-struggling clothing and home unit were weaker than the consensus.

Tesco’s revenue dropped on a comparable basis as a weaker performance in central Europe masked growth in the U.K. that came ahead of expectations.

John Lewis warned that it might not pay a bonus to its employee-owners after a drop in revenue. Paula Nickolds, the managing director of its department store division, is leaving.

Marks & Spencer stock has lost more than half its value after dropping in each of the past five years. Menswear and lower gift sales held back the company’s clothing unit.

M&S has been trying to turn around its business for the past decade, and its latest efforts are being led by Chairman Archie Norman and Chief Executive Officer Steve Rowe. Rowe said the weakness in Christmas sales was largely due to one-time issues such as the menswear performance and waste in the food unit.

Looking to Future

“The changes we made earlier in the year in clothing have arrested the worst of the issues of the first six months and we are progressively building a much stronger team for the future,” he said in a statement.

Food performed better at Marks & Spencer, helped by investments in the product range and price cuts.

Grocers Wm Morrison Supermarkets Plc and J Sainsbury Plc gave trading updates earlier this week. While Morrison acknowledged that its lackluster sales were partly its own fault -- it failed to take part in Black Friday sales this year -- Sainsbury’s performance was fairly robust. Next Plc, the first U.K. retailer to update the market last week, also beat market expectations.

The departure of Nickolds at John Lewis follows that retailer’s decision announced in June to name U.K. former telecom regulator Sharon White as its next chairman. The company’s department-store operations have been hit especially hard by the growth of Amazon.com Inc. and other online retailers.

“Paula and I have discussed where we are and we have agreed this is the right time for her to move on and we have reached that decision together,” departing Chairman Charlie Mayfield said on a call.

Profit for the year will be “substantially lower,” Mayfield said, after a 56% plunge in the 12 months ended Jan. 26, 2019. Scrapping the vaunted staff bonus would be an important symbolic blow after the company had clung to small payouts in recent years even as earnings weakened.

Tesco Gains

Tesco rose as much as 2.1% in London. Bruno Monteyne, an analyst at Sanford C. Bernstein, called the chain’s U.K. results a “material outperformance” compared to rivals. Still, the company only eked out 0.1% growth in Britain over Christmas.

“In a subdued U.K. market, we performed well, delivering our fifth consecutive Christmas of growth,” said Tesco CEO Dave Lewis, who will be leaving the grocer this year.

To contact the reporter on this story: Deirdre Hipwell in London at dhipwell@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier, Anne Pollak

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