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Market Watch: Festive results show online arena is vital for Tesco, Morrisons, M&S and Next

By Exeter Express and Echo  |  Posted: January 14, 2014

By Charlotte Lambeth, Charles Stanley stockbrokers

CharlotteLambeth

Charlotte Lambeth

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Christmas continued to affect things this week, as we finally got to hear how some of our biggest retailers got on over their busiest period of the year.

The results dragged on the market somewhat.

Morrisons posted a profit warning, revealing that profits would likely be at the bottom end of expectations, after like-for-like sales in the six weeks to January 5 slid 5.6 per cent. Morrisons famously lags the market in its online offering – which arguably means the shares could offer more potential growth in future, following the tie-up with Ocado announced last May – but this hurt them this year.

2013 has proved that the growth of online is only heading one way – up over 19 per cent on a year ago – with sales via mobile phones and tablets in particular increasing sharply.

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Tesco also saw weaker than expected results, with overall sales for the period down 2.4 per cent in the UK. However, their online sales rose 14 per cent.

Their insistence on maintaining a five per cent margin is potentially damaging in the current climate, where customers are either shopping at the high end (Waitrose, M&S Food and to an extent Sainsbury) or moving to budget brands such as Aldi and Lidl, who have seen their market share increase substantially. Tesco may have to accept that some margin erosion is the only way to hold on to their customers.

Marks & Spencer saw more of a mixed bag of results. Sales of clothing fell but, unlike Morrisons and Tesco, food sales rose over the period. Combined with better margins on its food business, this has offset some of the difficulties in the core clothing and homeware departments.

However, questions have been asked about whether they jumped to discount too quickly and deeply in the fortnight before Christmas. Certainly, lessons could be learned from rivals such as John Lewis and Next, whose strong online presence saw rising sales.

The British Retail Consortium noted strong growth in ‘click and collect’ services and suggests innovators in these new ways of shopping are likely to benefit. Next’s background in its Directory business gives it in depth experience of managing mail order customers, making the leap to online pretty painless and they remain well placed to capitalise on their operational efficiency in this area. They appear to be a rare success story in a high street and supermarket sector beset by problems.

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