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Sainsbury’s, and Majestic Wine hit by pre-Christmas discounting

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Christmas 2014 proved a testing time for retailers, as they were forced to discount to win business in a promotional market, a range of financial updates out today confirmed.

Many retailers, including House of Fraser and John Lewis , have said Black Friday was a peak date in the pre-Christmas calendar. But while November 29 was the starting point of healthy growth in sales over the festive season, it also seems to have set expectations of discounting through the shopping season, the most important of most retailers’ year, which dragged other retailers’ sales down.

Sainsbury’s said like-for-like sales excluding fuel fell by 1.7% in its third quarter, the 14 weeks to January 3, compared to the same time last year. Total sales were down by 0.4%, excluding fuel, and down by 2.5% including fuel after pump prices continued to fall over the period.

The supermarket said it saw customers trading up brands as prices were reduced following a £150m investment. But while overall sales were down, its online business enjoyed a record year. In the three days to December 23 alone, its online team delivered more than 110,000 orders. Growth was also seen in its convenience stores, which saw sales up by 16% in the period, reflecting a multichannel strategy of enabling shoppers to buy in the way that suits them.

Chief executive Mike Coupe, said: “Sainsbury’s has provided a great Christmas for our customers. Food price deflation and falling fuel prices have enabled our customers to treat themselves over the festive period.” Sainsbury’s said the outlook for the period would remain “challenging,” with food prices likely to keep falling.

Commenting on Sainsbury’s figures, David Gray, retail analyst at Planet Retail, said: “This morning’s sharp decline in like-for-like sales shows Sainsbury’s suffering can only intensify as the effects of a new retail reality bear down hard on company performance. Declining sales and profits have fast become the norm for an industry that for so long basked in profit growth year after year.

“Sainsbury’s numbers are underpinned by some of the toughest market conditions in a generation, with the era of rising industry food values coming to an end as food price inflation falls back. Combine this with the twin threats of falling food volumes and the seemingly unstoppable rise of the hard discounters and there really is nowhere to hide for Sainsbury’s new boss.”

Multichannel retailer Majestic Wine , reporting a 3.7% increase in total sales in the 10 weeks to January 5, and a 1.1% like-for-like increase for UK stores over the same period, said the Christmas period was “particularly challenging”, with “increased levels” of discounts being offered both in store and online. That means it had to reduce its profit margins by 50 basis points in order to ensure it remained competitive.

Chief executive Steve Lewis said: “We anticipate this competitive pricing environment will continue throughout much of 2015.”

Meanwhile, pureplay had a torrid day on the stockmarket, with shares losing 42% of their value and closing at 22.0p despite reporting a record Black Friday and sales up by 25% in the four weeks to December 31 and a record Black Friday. Demand more than doubled compared to its previous busiest-ever day, growing by 2.4 times. Its new warehouse and IT systems helped it to deliver on the promise to the customer. The fall in the share price came after the company said growth had fallen short of expectations – and that full-year profits would do the same – thanks to that same climate of discounting that affected Sainsbury’s and Majestic Wine. “We believe this was principally due to heavy promotional activity on the UK high street arising from the warm autumn season,” said’s trading statement.

Joint chief executives Mahmud Kamani and Carol Kane said: “Whilst the period proved a challenging trading environment, we have still grown the business by 25%, albeit short of previous expectations. We are very confident that our fashion credentials, pureplay online model and the significant investment in infrastructure will continue to drive growth in the UK and internationally.”

The updates came as figures from accountancy firm BDO suggested that like-for-like sales on the high street fell 1.4% year-on-year in December, compared to the same time last year. The fashion sector was particularly hard hit, with month-on-month sales down 3.1%, and year-on-year sales down by 6.1%.

Nick Fletcher, director of service strategy at Rakuten Marketing Europe, said: “It’s been a challenging period for the high street as customers have turned from the tills to the internet. The high street has struggled to compete with the convenience and speed of online shopping, and with tablets on top of the gift list this year, many people enjoyed purchasing on them. However, it’s the brands that tie their online and offline services together that are seeing the greatest sales, offering services like click and collect to drive shoppers in store.

“After a competitive Christmas, it can be a struggle for retailers to get shoppers spending again in January, so offering great customer experience and targeting customers effectively through marketing is key.”

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