Holiday Happier Than Expected for U.K. Retailers

British Retail Consortium Estimates 2.5% Increase

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LONDON (AdAge.com) -- British retailers, braced for a disastrous Christmas, were instead content with a modest but stronger-than-expected 2.5% increase over December 2006, according to the British Retail Consortium. But the outlook for 2008 is pessimistic.

The U.K. seasonal numbers are the best of the four big European Union economies -- France, Germany, Spain and the U.K. -- and matched the growth of the past two years. Allowing for inflation, however, the increase is modest.

'Less able to spend'
"We are expecting a tough start [to 2008] because of the pressure from mortgage costs, rising utility bills, fuel costs and concern about house prices," a spokesman for the British Retail Consortium said. "Along with the credit crunch, it all makes customers more reluctant and less able to spend."

The January sales are already attracting a lot of customers, thanks to deep discounts on a wide range of merchandise. "Big numbers are turning out," the spokesman said, "but how much will they spend?"

In most stores, holiday shoppers spent their money on small electronics, books, DVDs, and health and beauty, while bigger-ticket items such as large electronics and furniture generally did poorly.

A MasterCard spokesperson said, "An upsurge in electronics sales helped drive Christmas spending, as did strong year-to-year gains from grocery stores and personal care. Sales at most clothing retailers and department stores, however, continued to lag behind the pace of the rest of retail spending."

Harrods' record increase
Luxury department store Harrods fended off a sales slump with a record increase of 10% on last year, despite a drop in U.S. customers -- priced out of the U.K. by the strong British pound -- who used to be among the biggest spenders. More than a third of Harrods' customers are from outside the U.K., with the bulk of buyers coming from Russia, Kazakhstan and India.

John Lewis Partnership, the department store and supermarket group in which all employees own shares, also bucked the trend with a sales increase of 7.7% compared with last year. John Lewis is gaining market share, buoyed by old-fashioned customer service and consumer trust. John Lewis' website also had a record Christmas, with sales up 60% year on year.

Waitrose, John Lewis' premium supermarket chain, reported a sales increase of 25% to 30% the weekend before Christmas. A spokesman said, "At Christmas, people trade up and treat themselves." Top-end specialities did particularly well, with $1,000 jars of caviar selling out and doubled demand for the four-bird roast -- a partridge stuffed inside a duck inside a goose inside a turkey, which sells for $400.

As in the U.S., there was a late shopping surge during the pre-Christmas weekend as internet-shopping delivery deadlines passed and in-store prices came down. There was a sense of a standoff between consumers and retailers, as people held off their shopping until a week before Christmas, when the stores started heavy discounting of up to 50%.
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