Dire day for UK high street as retailers reveal poor Christmas trading

Morrisons issues surprise profit warning in tough market while Tesco and Marks & Spencer post worse-than-expected sales

Morrisons, Tesco and Marks & Spencer have all posted disappointing trading over the crucial Christmas period. Photograph: David Levene

The dire state of the UK high street was laid bare on Thursday asMorrisons, Tesco and Marks & Spencer unveiled weak trading over the crucial Christmas period.

In a surprise statement to the stock exchange, Morrisons warned its profits would be at the bottom end of City forecasts. The supermarket chain blamed consumers' lack of spare cash and its lack of a home delivery service and too few convenience stores for a 5.6% fall in sales at established branches in the six weeks to 5 January.

The chief executive, Dalton Philips, said: "In a very tough market our sales performance over Christmas was disappointing." He said shoppers who would traditionally stock up for Christmas at Morrisons had instead turned to discounters Aldi and Lidl.

Tesco, Britain's biggest supermarket chain, also announced worse-than-expected Christmas sales, which fell by 2.4% in the UK. "Clearly Christmas was disappointing," said the chief executive, Philip Clarke.

Clarke said that while online and convenience store revenue had risen, the group's large out-of-town stores had suffered falling sales. He said: "It's tough because the market is tough and consumers are still feeling they don't have as much to spend."

Adding to the grim day for big retailers, Marks & Spencer said non-food sales in the three months to 28 December fell below its own expectations. Group like-for-like sales in the eight weeks before Christmas were up 1% but over the past three months they were down.

Marc Bolland, the M&S chief executive, blamed unusually warm weather in October for the sales fall and said improved business over Christmas, helped by big discounts, could not make up the lost ground. Turning round M&S's ailing clothing business is Bolland's biggest headache.

All three bosses are under pressure to revive their businesses while dealing with fierce competition and reduced household spending power. Morrisons is trying to catch up with its rivals in the growth areas of online sales and convenience stores while Tesco is ploughing money into its long-neglected UK stores. Both are losing out to Aldi and Lidl, which have claimed record UK Christmas trading.

M&S's food business performed solidly but Bolland needs to revamp the group's clothing range, which is losing out to Next, arch-rival John Lewis and high-fashion chains such as Zara.

Bolland blamed other retailers for starting a price war in December that he said had forced M&S to offer discounts of up to 30% on general merchandise. Debenhams discounted aggressively in the runup to Christmas and unveiled a profit warning last week.

"Holding our nerve was something we were doing but the market didn't. We were not the first in; we were one of the last."

M&S said its discounting would reduce the profit margin in general merchandise.

Britain's big retailers face multiple problems – shoppers are buying more online and are cutting back on big weekend trips to the supermarket. With incomes squeezed by rising prices and stagnant wages they are spending less and taking their custom to discount chains.

Andre Spicer, a professor at Cass Business School, said: "The big companies have been resting on their laurels. This means while they are trying to change things around the fringe, they may have overlooked the reason that customers go to them in the first place – for good value in the case of Tesco or for quality in the case of M&S."

While John Lewis uses its stores to let shoppers browse, have a coffee and order online, "going into the average Tesco is a depressing experience most people avoid if they can", he added.