Key factors influencing investors in retail stocks were highlighted in the recent Christmas trading reports from Marks & Spencer, Next, Sainsbury’s, and Tesco.

Among the pressing concerns are the impact of rising household expenses due to increased taxes on income and other areas, the unexpected role of Netflix in shaping clothing trends, and the potential effects of weight-loss medications on grocery shopping habits.

The updates underscored significant economic apprehensions. Clive Black from Shore Capital remarked, “Rachel Reeves effectively heightened the sense of unease among the British populace.”

During the holiday season, consumers focused their spending on food and beverages, despite economic pressures. Even in the spirit of celebration, the pursuit of bargains was evident, perpetuating what Tesco’s CEO Ken Murphy describes as an “unending price competition.”

Nevertheless, shoppers indulged in select treats. Fraser McKevitt from consultancy firm Worldpanel noted, “This Christmas was marked by strategic savings and thoughtful decisions.”

He added, “Nearly every household opted for supermarkets’ premium lines, while cost considerations remained a priority.”

Trending: Reiss is part-owned by Next and is a royal favourite

Tesco, for example, sold 21m pigs in blankets from its vastly successful Finest range.

Among the trends set to be closely watched this year is the impact of weight-loss drugs. The Christmas figures hint at the possibility that the appetite suppressant effect of Mounjaro and other medications will change eating habits. Marks & Spencer this week launched a ‘nutrient-dense’ line of foods for this section of its clientele.

Against this challenging background, the updates reveal which names are most deftly adapting to shifts in consumer preferences and consolidating their dominance.

Alan Dobbie, manager of the Rathbone Income fund, said: ‘As we are seeing in many parts of the stock market – the strong are getting stronger.’

If you are shopping for British winners in 2026, these are the names that could be on your list.

FOOD

The festive fortunes of the non-quoted supermarkets highlight the testing climate in this sector.

The discount German chains Aldi and Lidl flourished, as the British hunted down bargain mince pies and turkeys. Debt-laden Asda and Morrisons lost more ground.

Even Tesco, the £28.95bn leading player in this league, was dented by the Aldi and Lidl assault, but it still contrived to exploit Asda’s woes.

As a consequence, Tesco’s market share stands at 28.7 per cent. But the 3.7 per cent rise in Christmas sales disappointed the market, causing a 5 per cent fall in the shares to 430p, although they are still up by 16 per cent over a year.

Analysts are equally split on whether Tesco shares are a ‘buy’ or a ‘hold’ – which is what I intend to do. I followed my own advice in this column in February 2024 to snap up a small stake at 285p. Dobbie argues that the current valuation is attractive, given Tesco’s solid balance sheet and the 3.5 per cent dividend yield, and analysts’ views indicate that the company can maintain its might. Citigroup has raised its target price to 510p.

Sainsbury’s, which controls 16.3 per cent of the grocery market, ‘smashed Christmas’ according to its chief executive Simon Roberts with a 5.4 per cent sales rise. Shoppers focused on value but also enjoyed some Taste the Difference premium range luxury.

But Christmas sales of electricals, homeware and toys were lower at the woebegone Argos operation, causing a Sainsbury’s shares to drop to 321p – although they are still 18pc above their level of a year ago.

Roberts has said that Argos is ‘separable’ and it seems now that he will be even keener to do a deal to dispose of the business. This would allow him to pursue his ‘Food First’ strategy with even more gusto. The shares are worth a bet on this basis.

Shares in Ocado have bounced by nearly 15 per cent to 271.7p since the start of the year, following a revaluation of the online supermarket’s prospects by JP Morgan which has placed the company on ‘positive catalyst watch’.

Ocado’s grocery arm, which is a joint venture with Marks & Spencer, was the fastest growing business in the sector in December – its market share is now 2.1 per cent.

The prospects for the group’s troubled technology operation also seem brighter. Ocado’s shares are 88 per cent lower than at the height of the pandemic love affair with this stock. Analysts recommend that the shares are a ‘hold’ at their current level.

This is a reasonable assessment, given many among Ocado’s more affluent clientele may be on weight-loss drugs and likely to be drawn by this supermarket’s nutrient-dense line, which includes Brindisa Perello salted almonds.

FASHION

The update from Next, Britain’s largest clothing retailer, was upbeat. Richard Hunter of Interactive Investor saw evidence of the £15.8billion giant’s ‘unparalleled understanding of the market in which it operates and its ability to capitalise on new opportunities’.

The brand’s ascent could still be impeded. Chief executive Simon Wolfson said that ‘continuing pressures on UK employment are likely to filter through into the consumer economy’.

But at Christmas, the giant was, as usual, able to overcome any vicissitudes, reporting a 9.5 per cent bounce in UK sales in the nine weeks to December 27. A 4.1 per cent improvement had been expected for the group, whose empire encompasses a 72 per cent stake in luxe specialist Reiss, a favourite of the Princess of Wales.

Next’s own and third-party labels were much in demand online. Fashion trends among the young are becoming international, under the influence of the styles on show in Netflix dramas. Next – which sells in 70 countries – spotted this vogue ahead of the rest, helping drive a 38 per cent jump in global Yuletide sales.

Shares in the retailer climbed by 44 per cent in 2025 and analysts now rate them a hold.

Hunter observed that ‘given Next’s ability to deliver time and again, perhaps the punchy price is justified’. Brokers Berenberg are confident enough to set a target price of 18,000p, against the current 14,265p.

The Reiss sale has many alluring reductions at present. But I am going to commit the cash instead to Next shares on the basis that this retailer’s unique style will lift my portfolio.

I invested in Marks & Spencer in October 2022, on the basis that I mostly wear the retailer’s clothing. The price at the time was 112p; it now stands at 335p, having declined by 12 per cent last year after the cyber-hack that forced the suspension of online sales.

The lingering effects of this crime were visible in the 2.9 per cent drop in clothing sales at Christmas. But the fan base for M&S food is growing.

Christmas sales rose by 6.6 per cent, aided by an 11 per cent jump in party snacks. In tough times, nothing sustains it seems as much as a mini chicken Kyiv.

Eight of the 15 analysts that follow M&S rate the shares a ‘buy’; the average target price is 419p. This reflects the belief that fashion will stage a resurgence.

Lucy Rumbold of Quilter Cheviot said: ‘The clothing business is steadily closing the performance gap and is on track to return to its pre-cyber incident levels by the full-year results in May.’

This weekend I am pondering whether to add to my M&S holding or to pick up a few more M&S sale items with big price cuts. I may compromise and opt for both.

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