High street celebrates more Christmas cheer, but sales remain depressed

Sainsbury's, New Look and JD Sportstoday joined the chorus of major retailers reporting bumper Christmas trading figures. The trio were the latest store groups to report "record" takings in a week that has already seen John Lewis and Next stun the City with better than expected holiday sales – albeit underpinned with caution that higher taxes will dampen consumer spending this year. Sainsbury's prospered as families capped a tough year with a "traditional" Christmas with all the trimmings, including champagne, sweets and clothes. At 4.2% the grocer's like-for-like sales beat market estimates and analysts said its experience, coupled with that of Waitrose and Asda, pointed to a better than expected December for food retailers. The feelgood factor spilled over into the clothing sector, with New Look reporting like-for-like sales growth of 5.9% in the 14 weeks to 2 January. JD Sports, which specialises is fashion brands such as Adidas and Fred Perry, said like-for-like sales rose 6.6% in the five weeks to 2 January. New Look chief executive Carl McPhail said it had overtaken Next as Britain's second-largest clothing retailer after Marks & Spencer during the quarter, and now had a 5.6% share. The embarrassment of riches being reported by some store chains paints a confusing picture for a country mired in the deepest recession since the second world war and with 2.5m unemployed. Analysts were quick to kill the buzz, pointing to the hardship retailers had endured since the downturn began. KBC Peel Hunt analyst John Stevenson said that the big percentage gains were "neither here nor there" as, with some exceptions, many retailer's sales are still running well below the level seen two years ago: "For most retailers, profits are still down." M&S made profits of £1bn in 2008 but they are expected to be in the region of £625m this year. Another factor distorting the picture is that retailers reporting are members of the survivors' club. Neil Saunders, consulting director at Verdict Research, estimates that retailers with a combined turnover of £7.4bn have disappeared from the high street in the past two years. The downturn has knocked out the weakest players in each sub-sector, with furniture and entertainment – where significant retailers Woolworths, Borders and Zavvi all failed – among the hardest hit. In the wake of the high street meltdown Verdict estimates £4.4bn of sales are up for grabs, an opportunity alluded to by Sainsbury's, where non-food sales, encompassing toys, DVDs and clothing, are growing at four times the rate of the group's food business. Saunders estimates Woolworths' collapse handed Tesco an entertainment "sales windfall" of £71m, while Sainsbury's picked up around £24m. The growth of New Look also demonstrates a "structural change", said McPhail, as shoppers increasingly seek out value chains. The trend has undermined mid-market stores such as M&S, while New Look and Primark have grown quickly. This flight to value comes against a backdrop of supermarket expansion which has put pressure on specialist retailers. Over the past decade the grocers have added iPods, TVs, clothes and mobiles to their aisles. Tesco and Asda have already established large non-food businesses, while Sainsbury's has been playing catch-up since chief executive Justin King took over in 2004, with the launch of its TU clothing and homewares brand. The retail reporting season may have just begun, but Saunders estimates that when total sales for the final quarter of 2009 – when retailers make the bulk of their profits – are announced there will be a shortfall of more than £500m. So when it comes to 2010, King, Next boss Simon Wolfson and M&S's Sir Stuart Rose all warn "it's going to be tough".King said that while consumer sentiment was very poor in 2009, for many their worst fears had not materialised: "We don't see an improvement in the economic backdrop. Much of what is expected to happen in 2010, is what people feared in 2009."