Shoppers are beginning to spend more freely but it will take a cut in interest rates before sales of more expensive items such as TVs and sofas start to take off again, the boss of Sainsbury’s has said.
Simon Roberts, the chief executive of the group, which owns Argos and Habitat as well as its supermarkets, said he was cautious about the outlook for general merchandise, with sales of furniture and homeware remaining weak as households faced high mortgage and loan costs.
“There is more evidence that customers are starting to trade up a bit and that’s really going to build,” he said as inflation on food had eased. “They are not always trading down [to cheaper food products].”
However, there had not been a marked shift on “big ticket” non-food items, Roberts said. “On general merchandise customers are more cautious. It is going to take a change in interest rates later in the year, let’s hope, for the environment on discretionary spend begin to change.”
Roberts said Sainsbury’s was “happy with momentum” and selling more goods and winning share from Aldi and Lidl as well as Waitrose.
He said as shoppers returned to working in the office they were shopping less online. “More and more want to go to a supermarket where they have full choice,” he added.
Roberts said the Sainsbury’s group hoped for a revival in sales of barbecues and clothes if there was a “more normal summer” after last year’s wet and cold weather.
However, sales of clothing, toys and homeware are under pressure as shoppers continue to battle high household costs. Sainsbury’s said it had also had delivery hold-ups caused by disruption to commercial shipping in the Red Sea and had got some fashion choices wrong. This led to an 11.4% fall in sales of clothing in the last three months of its financial year. Sales at Argos fell 6.6%, while grocery sales rose 7.3%, partly helped by inflation.
Roberts said he expected food price inflation to continue at less than 5% into next year as wage rises slowed, the cost of many commodities fell and energy and transport costs became more stable. He said supplies of UK-grown crops such as potatoes and onions were also under pressure from the “extreme amount of rain” over the winter and spring.
Sainsbury’s spent £220m in keeping prices down over the past year and in February it said it would use technology including automated tills, warehouse robots and AI-forecasting tools to ensure it has the right stock in stores to help cut £1bn of costs over the next three years.
As part of up to £850m in annual investment for the next three years, Sainsbury’s is also rejigging 180 of its supermarkets to make more space for food, especially fresh produce, while shifting out products also sold in its Argos outlets such as electrical gadgets.
Concerns about the outlook and the weak non-food performance overshadowed a better-than-expected 1.6% rise in underlying pre-tax profits to £701m in the year to 2 March, as sales rose 3.6% to £36.3bn. One-off costs from restructuring of the Sainsbury’s banking business meant statutory pre-tax profits fell 15.3% to £277m.
Sainsbury’s share price fell about 4% to 257p after the update. Russ Mould at AJ Bell said it didn’t hit the right note with investors.
“Underlying profit growth of 1.6% is pedestrian and a lack of dividend growth hardly signals a business going places. While [Sainsbury’s has] done well by focusing on food and broadening its appeal with more value-led products, clothing sales remain miserable and Argos’s performance is nothing to write home about,” he said.
