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* M&S Q3 clothing lfl sales down 2.1 pct, food up 1.6 pct
* Tesco 6 weeks to Jan 4 UK lfl sales, ex fuel and VAT, down2.4 pct
* Morrisons 6 weeks to Jan 5 lfl sales down 5.6 pct, ex VAT
* M&S shares rise up to 3.8 pct, Tesco's fall up to 4 pct
By James Davey and Kate Holton
LONDON, Jan 9 (Reuters) - Tesco, Marks & Spencer andMorrisons, three of the biggest names in British retailing,posted heavy falls in Christmas sales, showing few signs thattheir costly turnaround plans are working, and raising thepressure on their leaders.
Despite signs the British economy is improving, householdincomes remain stagnant as inflation outstrips slim pay rises,and Christmas has so far been mixed for the store groups.
"All three reports today were pretty nasty - Morrisonsespecially so," said a UK investor with shares in all theretailers.
Next, Britain's No. 2 clothing retailer, John Lewis, the nation's biggest department store group and No. 6grocer Waitrose have reported positive updates, driven bypowerful online performances. But others, such as Debenhams and Mothercare have issued profit warnings.
Tesco, M&S and Morrisons are underintense pressure from their traditional rivals but are alsofacing a new wave of competition from discounters such as Aldi, Lidl and Primark, as well asInternet specialists like Amazon and ASOS.
Annual inflation fell to a four-year low of 2.1 percent inNovember but consumers have been hit particularly by soaringenergy bills. Average earnings in Britain were up just 0.9percent in the three months to October, compared with theprevious year.
All retailers have said they expect 2014 to remain tough forBritons with wage rises continuing to fall short of inflation.
M&S, Britain's biggest clothing retailer which started outas a penny bazaar 130 years ago, reported a 10th consecutivequarter of falling clothing sales and cut its margin guidanceafter fierce discounting by rivals forced it to slash prices inDecember.
Its sales of general merchandise - which spans clothing,footwear and homewares - fell 2.1 percent in its third quarterto Dec. 28 at stores which have been open for more than a year.This drop was greater than analysts' forecasts and the firmavoided having to issue a formal profit warning only bydelivering a strong performance in its food business.
At Tesco - the world's third biggest retailer which tracesits roots to a market stall in London's East End in 1919 -like-for-like sales fell 2.4 percent over the six weeks to Jan.4 in its home market. Tesco has more than 3,100 stores inBritain, contributing two thirds of group revenue.
This outcome was at the bottom end of analysts' expectationsand prompted Tesco to acknowledge that the market consensus forits 2013-14 profit had come down.
Morrisons, the No. 4 UK grocer, revealed a 5.6 percent drop in like-for-like sales in the six weeks to Jan. 5, and forecastyear profit towards the bottom end of market expectations.
Chief Executive Dalton Philips had forecast in November areturn to like-for-like growth in the Christmas quarter.
The firm, hit hard by its late entry into online andconvenience channels as well as the growth of German discountgrocers Aldi and Lidl, said it did not see the usual surge inshoppers who normally upgrade to its stores at Christmas.
PRESSURE
The weak updates pile pressure on Tesco CEO Phil Clarke, whohas been in the post nearly three years, M&S's Marc Bolland, andMorrisons' Philips, who have both held the top jobs for nearlyfour years.
All highlighted the tough trading conditions they were upagainst but stressed their strategies would eventually deliver.
"Holding our nerve was certainly something that we weredoing, but the market didn't," said Bolland in reference to theunprecedented levels of clothing discounting.
The Dutchman is in the final year of a three-year, 2.3billion pound ($3.8 billion) plan to make M&S an internationalretailer connecting with customers through stores, the Internetand mobile devices.
Bolland has denied the reception of M&S's autumn/winterclothing ranges will make or break his leadership, repeatedlysaying that recovery will be "step by step".
He highlighted "early signs of improvement" in thewomenswear business, with small market share growth in this areafor the first time in three years.
Though M&S shares have fallen 4 percent over the lastquarter they have risen 20 percent over the last year on hopesof a recovery and increased as much as 3.8 percent on Thursday.
"It tells you how poor sentiment was going into thisstatement," said the UK investor. "The bull case for M&S stillprobably rests with a Next-like transformation, with increasedshareholder returns driven by dividend growth/special dividendsor buybacks."
Clarke, 20 months into a plan that has seen over 1 billionpounds poured into stores, extra staff, new product ranges andprices, said UK consumers remained under severe pressure.
"They don't have as much to spend as they used to because ofthe price of fuel and the price of utilities," he said.
Consumers were shopping more locally and online, shoppinglittle and more often, he said, noting that Tesco was adaptingto the changes.
Shares in Tesco fell up to 4 percent, while Morrisons fellup to 7.7 percent.
"I don't think any of these situations is irretrievable, butthere are no tailwinds at the moment so it's all headwinds forthem," said Jim Stride, head of UK Equities at AXA IM, who is ashareholder in all three retailers.
