With the key Christmas shopping period well underway, analysts at Nomura have been dispensing some festive joy - and gloom - across the retail sector.

The bank has cut its rating for Next, down 40p at £79, from buy to neutral and its recommendation on DIY specialist Kingfisher, 6.4p lower at 347p, from neutral to reduce. It said:

[Next’s] sources of prospective growth in international and brands are more tenuous than the long-term UK channel shift that so supported its delivery in recent years. As a developing theme, the group’s stores are now beginning to outperform expectations relative to online, perhaps indicating that the intensive space relocation of recent years has positioned the business for growth in store sales now that online penetration (for Next) is slowing. Our downgrade reflects the risk of some share price weakness ahead of the group’s 2016 guidance update in January.

[On Kingfisher] we have no issues with Kingfisher’s proposed unifying strategy as a means of offering differentiated home improvement products at low prices to customers. We think it will drive long-term market share. We are unclear at this juncture as to the programme’s capital and revenue costs. It seems likely that the requirements of a major supply chain change, refitted store estate over time and employee costs of implementing the programme will put pressure on shareholder returns (and the buy-back in 2016). As such, we have cut our estimates for some added costs and capex and no buy-back. Our view may prove short-lived, but we think the risks warrant trimming positions.

Overall on the sector Nomura said:

With continued employment and average earnings growth, we expect disposable income to grow around 3.5% in 2016 despite fiscal austerity. With staples inflation low, this points to another year of mid-single-digit discretionary consumption growth in the UK. Real wages are growing across Europe. We expect non-food retail to continue to grow below discretionary consumption as consumers prioritise cars and holidays over ‘stuff’. Within the sector, discounters, online and speciality retailers will likely continue to flourish at the expense of the big box.

It raised its target prices on WH Smith, 17p better at £17.66, and Dixons Carphone, up 2.7p at 482.3p, albeit with neutral ratings on both.

The bank also gave its preview of Christmas trading:

We expect ‘strong’ trading updates from Asos, ABF and WH Smith in the coming weeks. Kantar data (ABF), soft comps (Asos) and improving books market and traffic stats all support these views. The rest remains highly uncertain, in our view.

For the apparel subgroup we expect unseasonable weather in November to affect reports from H&M. The extent to which Debenhams, M&S and Next can recover lost ground in the next couple of weeks is key to outcomes. The extent to which online cannibalises (M&S/Debenhams) or helps (Next) may prove critical. For M&S we already cut our third quarter estimate some weeks ago. Similarly in homewares, Dunelm is likely to be hoping for lower temperatures to induce ‘hibernating customers’ to buy its seasonal ranges.

For the hardlines group we have pencilled in a return to growth at Home Retail against soft comps with better customer service and marketing. Given that the company has already pre-warned on the costs of implementing systems upgrades and a promotional environment, this is clearly an important statement. Similarly, we assume Dixons Carphone will return to growth in the third quarter, although its earnings agenda is currently dominated by integration synergies.

Both B&M and Poundland appear somewhat dependent on seasonal business picking up after a volatile start to the current quarter. We see Poundland as most exposed to further consensus downgrade risk.

Elsewhere Tesco is down 2.4p at 160.2p after a downgrade from Morgan Stanley:

We have been buyers of Tesco shares for the restructuring potential and the portfolio optimisation story. With the latter being on hold and headwinds in the UK sector offsetting self-help opportunities at Tesco, we think valuation is fair today. Move to equal weight, with a price target of 160p.