Now even Tesco is hit by high street slowdown

Click to follow
The Independent Online

The slowdown biting deeply into the high street is nipping even Tesco, the UK's most successful retailer. Underlying quarterly sales grew by 5.5 per cent between September and November, their slimmest improvement for two years.

Higher energy costs, an uncertain housing market and fears of higher taxes are keeping many Britons out of the shops. Others are holding fire to see whether retailers kick off sales before Christmas to whip up business.

High street sales dwindled for an eighth straight month in October, according to the CBI. Tesco sales tailed off from the first half of the its financial year, particularly of goods other than food, showing that even the runaway market leader is not immune. That disappointed investors and City analysts, who had been looking for an overall improvement of 5.8 per cent.

Tesco shares eased 2.75p to 310p yesterday. They have fallen by 7 per cent in recent weeks, but have doubled in value over the past two and a half years.

Jonathan Pritchard, at Oriel Securities, said: "Tesco is still a fantastic company. But right now the momentum of its forecasts and news flow is negative or sideways." He recommended that investors cut their stakes.

The company trimmed prices on 1,000 products - from soup to bread - to entice cautious shoppers to part with their cash. On average, prices were 1.6 per cent lower last year.

One of every £8 spent in British shops goes into tills in Tesco's 1,779 stores, representing one-fifth of the country's entire grocery bill. But Tesco is forecasting that this Christmas will be tougher than last, with increasingly stiff competition from J Sainsbury, which is clawing back market share.

This month, research showed Tesco's share of the grocery market slipped 0.1 per cent to 30.2 per cent during the 12 weeks to 6 November. That is still up from 28.3 per cent last year.

Andrew Higginson, Tesco's finance director, said: "Last year, we had exceptional growth because our major competitors were shooting themselves in the foot. Consumers are watching what they spend, but we're hoping for a good Christmas because we're defined as a discounter and people will be looking for bargains."

Tesco's Leeds-based rival Asda unveiled surprisingly poor quarterly sales and profits this month. Its parent, the US retail giant Wal-Mart, unveiled its meanest rise in profits for four years.

The Office of Fair Trading is once again set to investigate claims that the dominant supermarkets are stifling competition. That is fuelling fears that Tesco's growth at home may be shackled, and prompted its chief executive, Sir Terry Leahy, to look abroad for future growth. International sales, aided by a move into China, jumped 16 per cent during the third quarter.