UK retailers face post-Christmas inflation hangover

  • Tesco and M&S revise better-than-expected sales forecasts
  • Retailers warn of inflationary pressures
  • UK consumers snapped in December

LONDON, Jan 13 (Reuters) – British consumers enjoyed a stellar Christmas, according to results from the country’s biggest retail show, treating themselves to high-end food, drink and clothing before the sober reality of the price spike does not hit home in 2022.

Retailers Tesco (TSCO.L), Marks & Spencer (MKS.L) and Next (NXT.L) performed better than expected in the final weeks of 2021 as a rise in COVID cases left pubs and deserted restaurants and consumers flock to supermarkets. aisles for shrimp tempura, novelty bottles of gin and turkeys.

But they warned of pain ahead as pressure mounts in their operations, due to rising transport costs, wage hikes for warehouse workers and more expensive raw materials.

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Retailers also saw no immediate relief from supply chain disruption, with online fast fashion retailer ASOS (ASOS.L) moving more of its stock from Asia, at a higher cost. high, to guarantee delivery for Christmas.

Trade updates give an early indication of how retailers around the world fared during the festive season, with revenue from major US and European groups expected later this month and next.

Britain’s most famous retailer, M&S, a supplier of food, clothing and homewares, said it had largely resisted rising prices, but with inflationary pressures building up and are expected to yield in 2022.

“We just have to try to make sure we get that balance and do what’s right for the consumer,” M&S chief financial officer Eoin Tonge told reporters.

He said inflation in the food market in the 12 weeks to December was 2.7%, rising to 3.5% in December, but M&S ​​had not passed that much on to its buyers.

UK consumers have already seen food prices rise, with post-Brexit economic barriers driving up the cost of trade, and hikes in taxes and energy bills are set for April. The Bank of England expects consumer price inflation to hit 6% in April, its highest since 1992, before easing off.

Official economic surveys show household spending, which accounts for almost two-thirds of the UK economy, held up well until the end of December, but a lack of spending power in the spring will hit retailers hard as their costs remain high.

RISING COSTS

Britain’s biggest retailer Tesco said it was seeing inflation in operating costs of around 5%, up from normal levels of 2-3%.

“There is no doubt that there are inflationary pressures, (it is) very difficult for us to predict what they will look like over the next few months, but we will do our best to manage them,” said the CEO Ken Murphy to reporters.

Fast fashion groups have struggled as supply chain disruption limits their ability to quickly deliver new ranges from factories in Asia to customers. ASOS said it had already introduced low to mid-digit price increases to offset cost inflation.

This lined up with comments from Japanese clothing retailer Uniqlo (9983.T) which said it would raise some prices due to rising shipping and raw material costs. Read more

ASOS noted that despite the pressures it expected demand to continue as it is cheaper than many rivals and some shoppers will not have spent on vacations or weddings for two years. The retailer added that factories producing spring-summer ranges were closer to home, unlike winter coats which come from China.

“I think there’s a lot more demand to run,” chief operating officer Mat Dunn told reporters. He said transportation costs, while high, had plateaued and recent wage increases for warehouse workers had filled staffing gaps.

For Christmas, supermarkets said the arrival of the Omicron variant of the coronavirus had prompted many Britons to stay at home, although restrictions were not as strict as in 2020, when a last-minute lockdown in December hit hospitality and boosted supermarket sales. This provided difficult comparisons.

For Christmas 2021, Tesco sold more than 8 million bottles of champagne and sparkling wine and highlighted smoked salmon as one of its bestsellers. By comparison, sales at pub group Mitchells & Butlers (MAB.L) fell 10.2% in the four weeks of Christmas compared to the pre-pandemic period.

M&S said it sold one in four fresh turkeys nationwide, as well as more than a million bottles of glowing snow globe gin. M&S and Tesco both raised their earnings outlook.

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Written by Kate Holton Editing by Keith Weir and Jane Merriman

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