The British Retail Consortium reported that December 2018 was the worst December sales performance for a decade, with total retail sales showing 0% year-on-year growth during the month. We’ve had a number of Christmas trading updates from UK retailers in the last few days, with the common theme that numbers were not as bad as gloomy investors had feared. This does not mean that the results were encouraging!

Tesco has been the relative winner with respectable Christmas trading in the UK. They say they remain on track to deliver on their margin targets (3% in H2 2019). However, although Q3 2018 like-for-like sales were up 0.7%, this was still a slowdown in growth from earlier in the year.

The Discounters once again took the spoils, and we are seeing food retailers responding to price gap widening by introducing further price cuts.

Next’s trading update was broadly in line with expectations. However, full-year profit guidance was marginally reduced, as we continue to see the traditional ‘bricks & mortar’ stores act as a drag on performance, with the shift to online continuing to impact margins.

John Lewis also had a reasonable update with 7-week sales growth of +1.4%, but the company reiterated its guidance that profits will fall substantially short of last year, with the Board considering whether to pay a staff bonus. The company will repay its 2019 maturity bond with a mix of cash and medium-term bank debt.

Marks and Spencer was more mixed, with food marginally ahead of guidance at -2.1% in Q3, and general merchandise softer than expectations at -2.4%. However, this was not as poor as many analysts had been expecting. The company is endeavouring to address the changing competitive landscape with a multi-year turnaround plan.

This year we have once again seen a decline of in-store customer numbers, reflecting the continuing strong growth of online shopping. In addition, heavy discounting, which has been a feature of Black Friday, now seems to have continued throughout December. Consumer confidence – as measured by market researcher GfK – was at a five-year low in November, which typically signals a scaling-back of discretionary purchases.

In the context of the broader credit market, retail bonds don’t look particularly cheap and there remain significant challenges to the sector – and that’s without even considering potential disruption caused by a disorderly Brexit! The first quarter of this year is unlikely to yield much fundamental improvement in the sector.

2019 may be a new year, but the same struggles remain.

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