British supermarket group Sainsbury's cautioned today that the market for general merchandise and clothing would be tough in 2018.
The comments took the shine off a slight upgrade to the company's forecast for annual profit.
With Britons under pressure from slow wage growth compounded by higher inflation, company updates and survey data this month show they cut back on almost everything other than food purchases in the run-up to Christmas.
Sainsbury's, which extended its product range when it bought toys and electricals retailer Argos for £1.1 billion in 2016, indicated that trend would continue this year.
"We have to acknowledge the fact that the non-food market is challenging and there's certainly a little bit of a squeeze on consumer disposable income and where people are able to defer purchases they do," chief executive Mike Coupe said.
"We have to be slightly cautious in our outlook because it's reflective of the current consumer environment," he added.
Sainsbury's, the UK's second biggest supermarket group, said its general merchandise sales fell 1.4% in the 15 weeks to January 6, its fiscal third quarter, having fallen 1.6% in the previous quarter.
Clothing sales rose 1%, a sharp slowdown from second quarter growth of 6.3%.
Coupe said Sainsbury's still won market share in general merchandise and clothing despite the "challenging conditions".
He said UK consumers tightening their belts could in fact benefit Sainsbury's food business since "people eat out less and tend to eat in."
However, competition is intense in that part of the business where Lidl and Aldi have both said they will step-up investment in 2018, keeping up the pressure on Britain's established big four supermarkets.
Sainsbury's said third quarter retail like-for-like sales, excluding fuel, rose 1.1% - ahead of analysts' average forecast of 0.9% and growth of 0.6% in the previous quarter.
The company said its total grocery sales grew 2.3% with groceries online and convenience store sales up 8.2% and 7.3% respectively. Online accounted for a fifth of the group's sales during the quarter.
Coupe said grocery sales volumes "went backwards slightly" in the quarter but predicted food price inflation would fall out of the sector over the next six to eight months.
Britain's fourth ranked supermarket chain Morrisons yesterday beat Christmas sales growth forecasts while industry data indicated market leader Tesco utperformed its listed rivals during the festive quarter.
Tesco will update the market on its Christmas performance tomorrow.
Discounter Lidl UK said today that its total sales grew 16% in the Christmas period.
Sainsbury's said it now expected to achieve £80-85m of earnings synergies from Argos by March 2018, ahead of previous guidance of £65m.
As a consequence, the company's underlying pretax profit for the full 2017-18 year would be moderately ahead of the published analysts' consensus - an underlying pretax profit of £559m, down from £581m in 2016-17.