The gap between winners and losers in the U.K. retail sector widened over the holidays as consumers slashed spending amid fears about the deteriorating economy and rising unemployment, Ernst & Young said Monday.

"Overall, Christmas was weak but not the total disaster that some commentators were predicting. However, retailers operating in different sectors suffered or enjoyed vastly different fortunes," Jason Gordon, retail director at Ernst & Young said.

Food, value and niche retailers with a strong offer and brand execution delivered strong sales from stores open one year over the Christmas and New Year period. Grocery chains, value-based fashion retailers such as New Look and Associated British Foods PLC's (ABF.LN) Primark and niche players such as Game Group PLC (GMG.LN) outperformed the broader retail sector.

In stark contrast, big-ticket retailers in electricals, furniture and do-it-yourself as well as some mid-market fashion brands struggled to attract customers.

"The recession is accelerating the gap between the weaker and stronger players and between the performance of different sectors, as consumers trade down to value products and delay major home-related purchases," Gordon said.

Christmas 2008 also saw deeper discounting than ever before. Pre-Christmas discount levels averaged at over 38%, according to a recent survey by Ernst & Young. Including the first two weeks of January, post-Christmas markdowns averaged a record 62%, with some discounts of up to 90%, Gordon said.

The sales ended earlier than last year, indicating that many retailers managed stock levels more effectively than in previous years.

Winners bought less stock and took decisive action, often by going on sale earlier, Gordon said. Although footwear retailers were helped by the cold weather, many delivered solid figures, buoyed by well planned and executed promotional events.

"In contrast, against the backdrop of record price cuts, many other retailers' discounting activities weren't anywhere near as effective as planned," he said.

Turning to 2009, it is clear that it will be a "white-knuckle ride for much of the sector", with more casualties to come, he said. "As unemployment rises and house prices continue to slide, consumers will continue to batten down the hatches, preferring to save rather than spend."

But food and value-focused retailers, in particular, will continue to prove resilient.

"The inevitable shakeout of capacity in the worst hit sectors will allow remaining players to increase market share; and lowly-valued - but fundamentally sound - businesses will offer attractive takeover opportunities for potential investors," Gordon said.

Ernst & Young is the administrator of DVD, CDs and video games retailer zavvi U.K. It was also briefly the administrator of coffee and tea chain Whittard of Chelsea, which it subsequently sold to private equity firm, EPIC Private Equity, for an undisclosed sum.

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary. You can use this link on the day this article is published and the following day.
Game (LSE:GMG)
Historical Stock Chart
From Jun 2024 to Jul 2024 Click Here for more Game Charts.
Game (LSE:GMG)
Historical Stock Chart
From Jul 2023 to Jul 2024 Click Here for more Game Charts.