Tesco's UK sales fall as consumers feel the pain

World No.3 retailer Tesco Plc (TSCO.L) was hit by a drop in underlying sales in Britain for the fourth quarter in a row as cash-strapped shoppers crimped spending on non-essentials and price cuts ate into revenue in its core home market.

Chief Executive Philip Clarke said on Thursday UK consumers faced severe financial pain: "The UK economy is fragile, unemployment's at a 15-year peak, under-employment's rocketing, so we're facing into tough times," he said.

British retailers are nervous about consumer spending running into the key Christmas trading period following a string of profit warnings from companies such as French Connection (FCCN.L) and Game (GMG.L) and weak industry data for November.

On Wednesday outdoor goods retailer Blacks Leisure (BSLA.L) put itself up for sale and on Thursday shoe shop group Barratts collapsed into administration.

European store groups are struggling as shoppers' disposable incomes are squeezed by rising prices, muted wages growth and government austerity measures, and as they worry the euro zone debt crisis will plunge the region back into recession.

On Tuesday Metro (MEOG.DE), the world's No. 4 retailer, issued a profit warning, saying festive trading had started slowly.

"We're all prepared for it (Christmas) and there's a lot to play for," Tesco's Clarke told reporters.

Tesco, which takes about one in every 10 pounds spent in British shops, said sales at British stores open more than a year, excluding fuel and VAT sales tax, were down 0.9 percent in the 13 weeks to November 26, its financial third quarter.

That compares with analysts forecasts in a range of minus 1.0 percent to plus 0.5 percent following a drop of 0.9 percent in the second quarter.

It also compares with increases reported by rivals Asda (WMT.N), J Sainsbury (SBRY.L) and Wm Morrison (MRW.L), albeit for different trading periods.

Tesco said its outlook for the 2011/12 year was unchanged.

The firm, which trails France's Carrefour (CARR.PA) and U.S. leader Wal-Mart by annual sales, makes around two thirds of its sales revenue and three quarters of its profit in Britain.

The group has suffered in the economic downturn more than its main British supermarket rivals, in part because it sells more discretionary non-food goods where shoppers have been cutting back most.

"SELF-IMPOSED DEFLATION"

Tesco hit back in September, cutting prices in a 500-million-pound investment. It then reduced prices again in November to lure in Christmas shoppers -- a medium term strategy it has coined "self imposed deflation."

Clarke said food and grocery sales volumes were up by nearly 1 percentage point quarter on quarter.

"We created deflation in our food and grocery categories but we've got volume improvement ... The Big Price Drop's having the effect we wanted it to," he said. "We never expected to see it absolutely immediately in the top line."

Finance director Laurie McIlwee said the price cuts contributed over 1 percent of deflation in the quarter.

"We've created quite a chain reaction in the industry," McIlwee said, noting that official UK prices data for October had shown UK supermarkets had helped to pull back food inflation.

Tesco shares, which have underperformed the STOXX Europe 600 retail index .SXRP by about 4 percent this year, initially fell but had recovered to be flat at 396.9p at 1257 GMT, underperforming a FTSE 100 index up 0.25 percent. Analysts said consumers' response to the price cuts had been muted.

"We were hoping to see more of an improvement in momentum following the introduction of the new pricing strategy," said Espirito Santo analyst Caroline Gulliver.

Market research group Kantar Worldpanel said on Tuesday Tesco had lost market share to rivals.

Tesco noted continued weak demand in the more discretionary areas of general merchandise, clothing and electricals.

McIlwee said third quarter like-for-like sales in this category were still negative but "had improved quite a bit" and were better than the 5 percent fall in the second quarter.

Third-quarter group sales including fuel rose 7.2 percent, broadly in line with analysts' expectations.

The international business excluding fuel and on a like-for-like basis was up 1.1 percent.

Underlying sales growth in Asia slowed to 0.8 percent, held back by disruption in Thailand caused by flooding and the warmest November for 75 years in northern Asia.

Like-for-like sales were up 0.9 percent in continental Europe and up 11.9 percent in the United States where the firm's Fresh & Easy business is gaining momentum.

Clarke said he was disappointed India had suspended plans to open its $450 billion a year supermarket sector to foreign firms. "We think it's a lost opportunity," he said.

Blacks Leisure to be sold as investors reject cash call

Blacks Leisure, the struggling outdoor retailing group, has been forced to put itself on the market after shareholders refused to inject more cash into the business.

The company announced yesterday that it wished to "invite offers to support further investment in the group, which is most likely to involve a sale of the company or sale of one or more of the group's brands". This came after talks with shareholders about raising investment foundered.

The shares plummeted more than 50 per cent to 1.85p as the company revealed that, with debt at £36m, "there can be no assurance that any sale would attribute value to the ordinary shares of the group".

The decision to move to what company insiders called "plan B", is likely to pave the way for a pre-pack administration. The controversial insolvency procedure allows a company to collapse and then be bought quickly by a new owner, after its debts have been wiped out.

The accounting group KPMG, which was involved in an insolvency procedure that saved Blacks two years ago, has been called in to run the sale.

The company, which also owns the Millets chain, has been desperately tapping up its shareholders to raise additional cash. Analysts put the figure at about £20m, although Blacks has declined to name its exact target. The group said last month it was experiencing the worst retail environment it had ever seen.

As well as the need to raise cash, Blacks has been in negotiations with Lloyds Banking Group to renegotiate more than £40m worth of debts that fall due at the end of February.

The discussions have proved fruitless, forcing the company to put itself up for sale yesterday. One insider said: "There was good response from the shareholders, but there wasn't the support for the capital raising. The appetite wasn't there."

Sources close to the group would not be drawn on whether a pre-pack administration was imminent. One source said: "All focus is on a sale. These are strong brands and it is still a market leader."

Last year the company turned down a 62p-a-share bid from Sports Direct, owned by the Newcastle United chairman Mike Ashley. Sports Direct has a 21 per cent holding in the group.

The sources close to Blacks said the previous management team could not recommend it to shareholders as "so many conditions had been attached".

Sports Direct declined to comment on the Blacks announcement, or say whether it would return to the negotiating table with another bid for all or part of the company.

It emerged yesterday morning that Sports Direct was prepared to help Blacks with a joint venture that would share costs on warehouses, the supply chain and technology.

Barratts jobs at risk as shoe chain falls into administration

Shoe shop Barratts has become the latest victim of cut-throat competition on the high street after it was forced to call in the administrators on Thursday, threatening almost 4,000 jobs as Christmas looms.

Barratts Priceless Group, which is controlled by Michael Ziff, has 191 shops – including one on Oxford Street opened only last year — and 371 concessions. Deloitte has been appointed administrator.

The news came as speculation grew that a huge round of store closures was under discussion at Peacocks, the struggling clothes retailer chaired by Allan Leighton, formerly an Asda director and chairman of Royal Mail.

Sources said up to 200 shops could be axed in a bid to turn around the performance of the business, which has £240m of debt. Shareholders include the US investment bank Goldman Sachs and lenders include Royal Bank of Scotland.

The company was unwilling to comment on any closures. It said: "We continue to progress our restructuring discussions and plans, with no decisions taken at this point."

Barratts's move is the second time in as many years that it has been forced to seek protection from creditors and comes 24 hours after the outdoor clothing retailer, Blacks Leisure, said it was looking for an emergency buyer.

Daniel Butters, joint administrator and partner in restructuring services at Deloitte, said: "Barratts and Priceless Shoes have faced a downturn in trading as a result of the difficult economic conditions. This has been exacerbated by the unseasonably mild weather in recent weeks which resulted in fewer sales across new winter lines." Industry experts said Barratts was under pressure from low-cost stores such as Primark rather than direct rivals such as Clarks. But critics argued the latest crisis showed the company had failed to take tougher action earlier.

Deloitte said it would continue to keep Barratts trading while seeking a buyer for all or part of the business, in a bid to save 3,840 jobs.

It hopes to repeat the rescue of 2009, when the retailer was put into administration but 160 of 280 stores were bought back by Ziff, a veteran shoe retailer and chairman of the Stylo group.

Privately owned Barratts Priceless Group made a pre-tax profit of £6.1m on a turnover of £218m in the 18-month period to 31 July last year, according to accounts filed at Companies House.

In October, Barratts announced Richard Segal would become chairman. He said at the time: "Like many other retailers, the company is currently operating in a challenging economic environment and I look forward to working with the executive team to accelerate its adaptation to recent market changes."

In a newspaper interview less than 12 months ago, Ziff said he was still scarred by the "traumatic" experience of cutting 2,500 jobs in 2009. He explained: "This is something I would never ever want anybody to go through again."

Lenders to Peacocks, which was originally formed by Warrington-based businessman Albert Peacock in 1884, brought in the accountants KPMG last month to draw up a plan to improve performance. it reported to Companies House it had made profits of £66.5m in the year to March 2011, but has run into trouble since.

The 200 rumoured closures, out of 611 UK stores and 117 overseas, were being discussed as part of a broad restructuring plan aimed at safeguarding the company's future, Sky News reported, quoting people "close to" Peacocks.

The talks over the future of a business, which also owns almost 400 Bonmarché outlets in Britain, involve a large syndicate of banks led by Barclays and partly state-owned Royal Bank of Scotland.

Another part-nationalised bank, Lloyds Banking Group, sold most of its interest in Peacocks' debt to a firm called Strategic Value Partners several months ago. Goldman Sachs, which is both a lender to and investor in the clothes company, was expected to become Peacocks's biggest shareholder after the debt restructuring.

Deteriorating trading conditions have hit all kinds of retailers, including clothes shops and electrical chains, with consumers cutting their discretionary spending as the cost of energy, food and other essentials have risen.

Blacks Leisure has closed 101 stores in the recent past but this year issued two profit warnings and on Wednesday put itself up for sale.

On the same day electrical retailer, Comet, announced first-half losses of £23m, underlining why its parent group Kesa had recently agreed to hive off the 248 store chain to a business turnaround specialist for a nominal £2.

Last month the American retailer Best Buy said it was pulling out of Britain, while Focus DIY collapsed into administration earlier this year after defaulting on loan payments.

In June furniture store Habitat went into administration before some of its stores and the brand were bought out by Home Retail Group.

And struggling sports retailer JJB Sports narrowly avoided administration three months earlier after agreeing a new deal with landlords and agreeing to close up to 89 of its stores, in addition to the 140 stores it shut in 2009.

http://news.bbc.co.uk/panorama/hi/front_page/newsid_9652000/9652944.stm

Britain's biggest supermarkets spend a lot of advertising money telling us they offer great value. But an investigation by Panorama has revealed that not all "bargains" are quite what they seem.

The deals at Asda, Tesco, Morrisons and Sainsbury's might seem to be everywhere, but strip away the jargon and catchy promises of "huge savings" and "special offers" and you are just as likely to find tactics that experts say range from a bit cheeky to others that could lead to prosecutions for breach of consumer protection regulations. Among them:

The 'Wow' Factor?

At Asda, the well-publicised Special Offers area of their online shopping site was offering Wow deals. They told us that it meant they were cheaper than they would normally be.

But a check of the price histories of some of the Wow items found that 11 had been for sale at the same price for at least six months - so no savings there - and four items were actually more expensive than they used to be.

Deborah Parry, a lawyer who advised the government on EU consumer protection regulations and British law, says the Wow labelling could be a breach of the law.

"Your average consumer when they learned the truth that the price was not reduced and in fact had been increased almost certainly would not purchase them."

When contacted by the BBC, Asda said the products should not have been advertised as Wow and removed them from the website.

The Multi-buy non-deal

This is the advertising on the shelves that announces Two for £2, but fails to highlight that there is no saving there - the item's price is £1 each.

But does it make us buy more?

Psychologist Gorkan Ahmetoglu, who wrote a report for the Office of Fair Trading on the influence promotions and offers of savings have on shopping habits, says this type of advertising acts as a subconscious trigger.

"They are triggering the same reaction as when you eat chocolate. The offer will still attract your attention and a lot of people will not look at the single unit price."

The new - yet old - low price

This is known as price establishing in the marketing world. A retailer sells a product at a certain price for a long period of time, but then suddenly raises it. Later, the price is dropped back to where it was in the first place and the supermarket tells us that it has "slashed the price".

Supermarkets: The Numbers UK consumers spent £96bn in supermarkets last year £65bn was spent in Tesco, Asda, Sainsbury's and Morrisons The big four opened 200 new stores in the past year

Tesco's Big Price Drop seemed to do this with its medium whole fresh chickens, which rose from £4 up to £5 for a little over two months before the Big Price Drop saw it drop back down to the original price of £4.

This one is perfectly legal so long as the higher price is in place - or established - for 28 days, or is in line with consumer expectation - which is where they might run into trouble with the regulations.

Deborah Parry says this too could be a breach of the laws meant to protect the shopper.

"If it could be established that the average consumer was being misled by the suggestion of a previous higher price... then it could lead to a criminal prosecution."

Tesco says this pricing practice had breached no rules and defended the price rises before the Big Price Drop, saying it was launched in a period of significantly higher food costs and that the campaign was to help combat inflation not eliminate it.

Where are the scales?

While loose fruit and veg seems to be priced per kilo, some packaged items are often only priced per pack, with no weight listed.

At Sainsbury's, a pack of five bananas cost £1. Bought loose, the same number cost just 42p.

The packed bananas were actually almost 99p per kilo more expensive.

At Asda, it was the three red onions in a net bag that cost £2.85 a kilo, compared with just 86p a kilo if bought loose.

At Morrisons, it was the other way around - a bag of Empire apples cost £1.82 a kilo, but if you bought them loose it would be £2.99 a kilo.

All the supermarkets told us customers liked to have the option to buy by weight or by number.

John Bridgeman, the former head of the Office of Fair Trading, says supermarkets have a responsibility to be straight with their customers.

"We've got to do much better at giving people the information they need to buy carefully, properly and secure value."

Buy Now! Buy Then?

A label with a price that says Now £2 but fails to mention what the older "then" price was.

At Morrisons, fabric conditioner was labelled as Now £2 - Offer Ends Sunday but neglected to mentioned that two weeks earlier it had cost only £1.65.

For their part Morrisons said the product had been more expensive earlier in the year so the £2 still represented good value.

Less is more - much more

When "bigger pack, better value" in fact means, bigger pack, costs more.

At Asda, a 1kg tub of Clover spread was £3.20, 20p more than buying two 500g tubs of the same.

At Morrisons, the "value" pack of the same spread was £1.70 more than the two smaller packs.

At Tesco, the Vanish stain remover was £12 for the "big value" size - a full £3 more than the if you just bought three smaller containers with the exact same amount of product.

The supermarkets said manufacturers often put the value labels on their products. They say they offer thousands of deals and display unit prices so shoppers can compare items.