Following Sainsbury’s somewhat disappointing interim update this morning, chief executive Mike Coupe said the prospect of clarity from the Christmas general election could bring respite for the retail sector in the New Year.

Today’s update was always likely to be a subdued affair given that Sainsbury’s outlined many of its strategic changes for the future at its capital markets day in September.

While underlying pre-tax profits fell 15% year on year, Coupe was upbeat about the business’ forward trajectory.

Interest was focused on the prospects of Sainsbury’s, and the wider industry, as it approaches the most important time of the year.

With an election looming on December 12 – the first winter poll since 1923 – much of the talk was about what effect the vote might have on Christmas trading and what the aftermath might be.

Coupe said he “genuinely has no idea” about the impact of the election but anticipated there would be some negative effects on sales on voting day. However, he was adamant Sainsbury’s is in a good place as it heads into the crucial trading period.

A merry Christmas?

Coupe pointed to Sainsbury’s 12 new value brands, and 123 new entry price-point products, which he said were already helping to “generate positive momentum in our grocery sales”. They inched up 0.6% in the first half.

When asked whether Sainsbury’s was on track to return to sales growth in the third quarter of the financial year, his response was bullish. Pointing to Sainsbury’s improving Kantar market share numbers, Coupe said the retailer was “the best performer of the traditional supermarkets”.

He also said the grocer was “comfortable with consensus for the second half of the year, which implies we’ll have a reasonably good second half and will see some kind of profit progression”.

Shore Capital head of research Clive Black agrees but cautions that the uncertain backdrop and competitiveness of the market means trading will be fiercely fought out.

“Election day is a relatively dull day for retail sales. The closer we get to Christmas, the higher our sales are. So, from that point of view, it’s going to be unhelpful”

Mike Coupe, Sainsbury’s

“Sainsbury’s are in better shape than they were. The prices are sharper, the stores are in better shape. From a grocery sales perspective, they are going to the peak quarter with a little bit more of a spring in their step,” he said.

“Whether that actually translates into a better profit outcome remains to be seen. It’s a demonstrably competitive market and the backdrop is far more uncertain than anyone would like.”

GlobalData analyst Thomas Brereton agrees and says not only will Sainsbury’s be competing for market share with the discounters, but with traditional rivals such as Marks & Spencer and Waitrose, who will seek to appeal more to value family food shoppers.

“M&S has shifted towards value and is trying to bring in a new family shopper. So too Waitrose, who will target food shoppers and try to get them to trade up,” he observes.

Brereton also says the well-documented availability issues Sainsbury’s suffered at the end of last year and beginning of 2019 may have resulted in it losing shoppers to competitors such as Tesco and Morrisons, and they may be “unlikely to return in time for Christmas”.

The election intangible

The great intangible looming over the festive period for retailers remains the election.

When asked what impact an election so close to Christmas might have, Coupe relied on his historical experience of trading during other general elections.

“Generally speaking, election day is a relatively dull day for retail sales. The closer we get to Christmas, the higher our sales are. So, from that point of view, it’s going to be unhelpful,” he said.

However, he was confident consumers would still come out and shop at Christmas.

“The underlying sentiment will still be there – people will still have a great Christmas, as they always do. They will spend their money. Customers will almost certainly spread the spend around the day of the election, I doubt much will go missing.”

“The whole Brexit scenario hangs over customers and creates a level of uncertainty. The quicker we can resolve that situation, the more likely the underlying economic factors should rebalance themselves”

Mike Coupe, Sainsbury’s

But the result of the election will have ramifications for the sector that go beyond this Christmas.

Global insights director at TCC Global, Bryan Roberts, said the UK consumer is becoming “increasingly bored of the political uncertainty” and the prospect of another inconclusive election result would be a “huge drag on supermarkets”.

“Frankly, what the public and the retail sector needs is some certainty. Certainty around the makeup of the government, whatever that might be, and certainty in terms of getting Brexit sorted.”

Coupe clearly agrees. He speculated that another inconclusive election result might lead to a “hangover into the New Year”.

He said: “I would suggest the whole Brexit scenario hangs over customers and creates a level of uncertainty. The quicker we can resolve that situation, the more likely the underlying economic factors should rebalance themselves.”

Brexit clarity re-rating

Despite the uncertainty, Coupe struck a positive note. A conclusive election result would lead to a resolution, one way or another, of the Brexit impasse, which in turn would improve consumer confidence.

That, he said, could lead to a positive re-rating of the wider retail sector in the City.

“There is clearly an overhang not just within retail, but also given the economic conditions with anything that’s consumer-facing given the Brexit backdrop,” he said.

“The sooner we can resolve our future as far as that’s concerned the better, because ultimately that’s what will fuel consumer confidence and that’s what will, I suspect, lead to a re-rating of retail in the UK.”

“If there was a majority government that brought some clarity to the UK’s future relationship with the EU that would be welcome and would be reflected in consumer sentiment”

Clive Black, Shore Capital

While such an event would be a much-needed boost to a retail sector, which has suffered badly this year, is it overly optimistic?

This week alone, the sector has seen the collapse of Mothercare’s UK business, deepening losses at Clarks, profit falls at Halfords and M&S, and a profit warning from The Works.

Black agrees with Coupe and said: “If there was a majority government that brought some clarity to the UK’s future relationship with the EU that would be welcome and would be reflected in consumer sentiment.”

Impossible to predict, the upcoming election is clearly not just an issue for Sainsbury’s. However, Coupe and his team know they face a crucial eight weeks of trading going into Christmas.

Coupe won’t be the only retail chief executive asking Father Christmas for a conclusive result.