Britons splurge at Christmas but retailers brace for tougher 2023

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By James Davey and Paul Sandle

LONDON (Reuters) - British shoppers spent freely at Christmas, piling their trolleys with party food, drink and clothing as they enjoyed the first holiday season free of COVID worries for three years, but retailers warned they will tighten their belts in 2023.

Tesco (OTC:TSCDY) and Marks & Spencer (OTC:MAKSY), two of Britain's biggest retailers, posted better than expected Christmas sales as people snapped up festive treats despite a deepening cost-of-living crisis.

In-store sales were particularly strong, with strikes by postal workers giving an extra reason to return to the High Street.

Results on Wednesday from another big supermarket, Sainsbury's, showed a similar trend, confounding retailers' worries that Christmas trading would be sluggish given double-digit UK inflation and low consumer confidence.

The outlier was online-only fashion retailer ASOS (LON:ASOS), which has stumbled post-pandemic after a decade riding the wave of the shift to internet shopping. It said on Thursday that its revenues were down 3% in the four months before Dec. 31, with UK sales down 8%.

Delivery problems exacerbated ASOS's problems this Christmas and showed the value of a bricks and mortar presence.

Marks & Spencer, which has about 1,000 UK stores, gained market share and beat expectations with its sales in the four-week Christmas period, posting like-for-like food sales growth of 6.3% and an 8.6% rise in clothing and home sales.

Store sales were a strong point for M&S - it said they grew 12.8% - while click and collect orders, where people visit stores to pick-up items ordered online, were also up 20%.

The country's biggest retailer, supermarket group Tesco, posted underlying sales growth of 7.2% in the six weeks to Jan.7, also stronger than expected.

But both retailers warned of challenging economic conditions ahead as the strain on Britons' household budgets starts to be felt more keenly when Christmas credit card bills arrive.

"We all would expect customers to tighten their belts after Christmas and that's certainly what we have built into the plan this year," Tesco Chief Executive Ken Murphy told reporters.

Outside the Christmas splurge on food and gifts, Britain's retail market is already finding consumers are cutting back. British motoring and cycling parts retailer Halfords trimmed its profit forecast on Thursday, citing softer cycling and tyre demand.

Clothes retailers Next and JD (NASDAQ:JD) Sports both reported strong festive sales over the last week, while Sainsbury's, no.2 behind Tesco, reported a 5.9% rise in underlying sales for the Christmas quarter.