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S&P: UK elections, Brexit uncertainty dampen holiday sales for retailers in '19

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S&P: UK elections, Brexit uncertainty dampen holiday sales for retailers in '19

The U.K.'s general elections in December 2019, coupled with persisting Brexit uncertainties, weakened consumer spending during the holiday season, S&P Global Ratings said in a Jan. 21 report.

The agency said it expects the country to register real GDP growth of 1% in 2020, down from 1.3% in 2019.

Ratings said it observed a significant increase in discounting and price cuts in 2019 as competition across all retail segments both online and offline intensified. As a result, many retailers experienced topline decline during the year.

The agency said that nonfood retailers in the U.K. were hit the most by Brexit and other related political uncertainties. There have been increased store closures in the segment as companies shut loss-making stores and cut floor space due to declining traffic to stores.

Meanwhile, e-commerce company Inc. continues to dominate the nonfood retail segment, with its share of nonstore sales reaching about 30% in the U.K.

Grocers fared a bit better during the holiday period, but they still struggled to achieve meaningful topline growth, Ratings noted. Tesco PLC, in particular, posted its biggest day of U.K. food sales in its history during the holidays but it only saw a 0.1% increase in like-for-like sales over the Christmas trading period.

Ratings said that U.K. food retailers are also facing increased competition from German discount chains Lidl and Aldi, which continue to lead the market with impressive sales performance.

Ratings expects the weak topline performance of U.K.-based retailers during the holiday season to weaken their margins and cash flows.

"The execution and success of cost management and cash preservation initiatives aimed at working capital and capital expenditure... will be key to maintain margins, cash flow, and credit quality," the agency said in the report.