WRAPUP 1-Poor Christmas at M&S and Tesco ratchets up pressure on CEOs

By James Davey and Neil Maidment

LONDON, Jan 9 (Reuters) - Tesco and Marks & Spencer, the biggest names in British retail, posted heavy fallsin sales in the run up to Christmas, showing no sign of theirmuch vaunted turnarounds and ratcheting up pressure on theirchief executives.

The 130-year-old M&S reported its 10th consecutive quarterof falling clothing sales and cut its margin guidance afterfierce discounting by rivals forced Britain's biggest clothingretailer to slash prices in the week before Christmas.

The 2.1 percent drop in general merchandise sales, whichspans clothing, footwear and homewares, was well belowforecasts. It avoided a formal profit warning by delivering astrong performance in its food division.

At Tesco, the world's third biggest retailer with 3,100stores in Britain, trading in its home market slumped 2.4percent, at the bottom end of expectations and prompting thecompany to acknowledge that the market consensus had come down.

The weak trading updates pile pressure on M&S ChiefExecutive Marc Bolland, who has been in the post for almost fouryears, and Philip Clarke, who has been in the top job nearlythree years.

To add to the gloomy picture, WM Morrison issued anunscheduled trading update to reveal a sharp fall inlike-for-like sales over Christmas and said it now expected itsfull-year profit performance to be towards the bottom of therange of market expectations.

Britain's fourth largest supermarket chain, which has beenhit hard in recent years by the growth of German discountgrocers Aldi and Lidl and its lack of an online offering, saidit did not see the usual surge in shoppers who normally upgradeto Morrisons over the Christmas period.

Those who did turn up bought fewer products.

Joe Rundle, heading of trading at ETX Capital, a spreadbetting company, said the trading updates showed difficultconditions in which even big money promotional activity andheavy discounts could not help boost sales.

"For M&S, Tesco and WM Morrison, it's the outlook for theseretailers which worries the market, (they) have questionablestrategies which are now under intense scrutiny by shareholdersand the market alike."

TOUGH GOING

Though Britain's economy is improving, major grocers arefinding the going tough despite their focus on essential goods,as consumers' disposable incomes remain under pressure from wagerises not keeping up with inflation.

Analysts reckon all of Britain's so called "big four"grocers, which also includes Wal-Mart's Asda, JSainsbury and Morrisons, lost market share in therun-up to Christmas, reflecting a subdued overall market andincreased promotional activity.

In a sign of how tough trading is among the big grocers, themain winner among the four is likely to be Sainsbury's, whicheked out growth of 0.2 percent excluding fuel, in the 14 weeksto Jan. 4, its fiscal third quarter.

Tesco, which makes about two thirds of its revenue inBritain, is 20 months into its UK turnaround plan and is pouringinvestment into store upgrades, extra staff, new product rangesand price initiatives.

Shares in the group, which trails France's Carrefour and U.S. giant Wal-Mart in annual sales, weredown 2.7 percent.

Morrisons fell 5.5 percent while shares in M&S, which isalso in the middle of a turnaround plan in its fashion range,rose 3 percent as analysts said much of the bad news had alreadybeen priced in.

"Given low prior expectations, investors appear to bebreathing a sigh of relief," said Keith Bowman, Equity Analystat Hargreaves Lansdown Stockbrokers, commenting on M&S. "Saleshave proved to be no worse than forecast. Nonetheless,performance remains a long way from rival Next.

"In all, the former Morrisons chief executive (Bolland)continues to be given the benefit of the doubt, with analystopinion coming in at a hold, albeit a firm one."

M&S CEO Bolland said he was seeing signs of improvement inthe important womenswear business. He has previously insistedthe reception of M&S's autumn/winter ranges will not make orbreak his stewardship of the company, stressing recovery will bea "step by step" process.

"There is really no volume growth (in grocery)," NeilSaunders, of retail analysis group Conlumino, said.

"There is an awful lot of supply, so the end result is thereis a great deal of competition and ultimately it is very much azero sum game. Someone gains share and someone else loses it,and what we have seen today is two of the losers from thegrocery market at Christmas."

The more general fashion and homeware retailers have alsobeen hit by fierce discounting in the run up to Christmas, withmany British high streets a sea of red sale signs.

Trading updates released since the Christmas holiday haverevealed the split amongst retailers, with Next and JohnLewis reporting bumper trading while retailerDebenhams issued a sharp profit warning.