Goodwill towards retailers was in short supply as the countdown to Christmas became increasingly nervy.

The CBI’s retail survey was the latest to show sales have been extremely late to take off and the outlook for 2009 is pessimistic.

Tough conditions have been evident in the swathe of Sale signs plastering the high street and volume of promotions. Marks & Spencer, which has run two 20 per cent-off days, shifted its promotional stance last week towards selective discounts.

However, speculation was rife that the retailer’s sales fell off a cliff last week and categories such as womenswear were down as much as 30 per cent. Broker Pali International slashed its forecast for M&S by 7 per cent to£599 million and said: “M&S should survive the downturn, but investors have to appreciate that we have not yet got to the bottom of the alarming earnings and dividend decline it will suffer over the next two years.”

JP Morgan was concerned by the latest CPI food inflation data, showing a month-on-month increase of 1.6 per cent.
The broker feared it was bad news because more costly food would encourage the general trend towards trading down.
It warned: “High food inflation has actually changed consumption patterns in such a radical way that we see the prospects of a full-blown price war rising considerably – potentially started by Tesco as it is the market leader and is losing market share.”

Blue Oar conducted a mystery shop at supermarkets and observed Tesco “has a strong promotional package and good operating standards”. But the broker maintained: “We predict Morrisons will be the winner again this Christmas. Despite the double-digit comparatives that the company is up against, Morrisons has sales momentum together with ‘hero’ deals that are driving footfall and winning market share.”

Seymour Pierce, which put home shopping group Findel under review in August, decided to make a hold recommendation. Concerns about the retailer are already factored into its valuation, the broker said.

There was some good news for general retailers as Argos owner Home Retail Group was promoted to the FTSE 100 and value homewares specialist Dunelm to the FTSE 250.

However, ING moved Home Retail from hold to sell, saying the impact of the strengthened dollar is not reflected in consensus expectations and Argos’s profits are vulnerable to the downturn.

Topics