UK Stores Fear Recessionary Mores

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What's going on?

A swathe of British retailers, including most of the major grocers, reported their financial results this week and while the news was broadly good, stock prices of big names like Tesco and M&S took a hit after their numbers fell short of investors expectations.

What does this mean?

Tescos shares fell 5% on Thursday following disappointing holiday sales. Food sales werent an issue (fresh produce was, indeed, particularly strong), but sales of general merchandise (e.g. consumer electronics) were weaker than anticipated. This mirrors tough holiday trading periods at other old-school British retailers, including Debenhams and Moss Bros. Meanwhile, grocers Sainsburys and Morrisons reported bumper profits, suggesting that the problems were lurking in the non-food aisles.

Why should I care?

The bigger picture: Retailers are feeling the pinch from cautious UK consumers.

Another British retailer, M&S, saw its share price fall 7% on Thursday following its own results. The CEO said British consumers are behaving in a recessionary way, which is finance-speak for being tight-fisted and its clearly hurting other retailers too. This is hardly a surprise: as inflation has increased in Britain over the past 18 months, wage increases have failed to keep pace leaving consumers with less money to spend in stores.


For markets: Retailers elsewhere had a better holiday season.

Meanwhile, holiday sales in the US grew about 5%, the strongest figure in recent years. Its not all tinsel and chestnuts, as department stores and other retailers (including grocers like Kroger) continue to face pressure from ecommerce but American consumers are clearly in a better position to splash greenback (and at least some retailers are adapting to the new, online world). Investors have noticed: starting in November, US retail stocks began to turn around following a brutal year before, and are now approaching their highest level since 2015.

Originally posted as part of the Finimize daily email.

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