UK retailers grapple with difficult Christmas trading
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The first two items sold in the Christmas sales by Selfridges, the London department store, were at opposite ends of the cost spectrum: an Alexander McQueen bag reduced from £1,390 to £695 and a Moschino phone case, also sold half-price — at £20.
Retailers will be hoping that their Christmas season revenues and profits come out closer to the McQueen end of the spectrum but so far, indications are that they could be headed towards the other.
This has been a volatile year for the British retail sector, which is still grappling with changes in the way people shop, growing competition from online players such as Amazon, and weaker consumer confidence in the face of rising inflation and sluggish wage growth.
Nick Bubb, an independent analyst, said: “Full price retailing is practically dead and the consumer is only responding to discounts. And, after a final fling in the sales the consumer will shut up shop, ensuring a very tough first quarter next year. The main focus in [companies’] January trading statements will be on how much damage has been done to gross margins by all the discounting.”
A clutch of surveys since the Boxing Day sales began have suggested that the number of people turning out to shop was down on last year, but that more were choosing to buy online.
The problem however is that the rise in online spending is unlikely to be enough to offset fully the drop in so-called footfall, because internet sales represent just 20 per cent of all retail turnover, according to Springboard, an industry intelligence provider.
Springboard said that average footfall in shops by the end of Boxing Day was down 4.5 per cent compared to last year while PCA Predict, the online services company, said internet sales were 5 per cent higher.
Chris Boaz, head of marketing at PCA Predict, said: “This increase in [online] sales is due to extended sales periods between Black Friday and Christmas. People continue looking to snap up deals throughout Boxing Day.”
Diane Wehrle, insights director of Springboard, said retailers had promoted Black Friday discounting earlier this year compared to 2016 and had maintained it for longer — in order to overcome consumer caution impacted in part, by November’s first interest rate rise in a decade. In so doing, “retailers have made a rod for their own back”, she added.
Even Next, the high street clothes store that had held out against Black Friday discounting, this year succumbed to the trend by cutting prices by as much as 70 per cent, according to its website.
The British Retail Consortium, the industry trade body, believes it is too soon to draw conclusions about the impact of Black Friday — the US discount shopping day on the Friday after the Thanksgiving holiday, which British retailers reluctantly adopted in order to compete with Amazon.
Rachel Lund of the BRC said: “Black Friday has only been a significant event in the past few years, so it may take time for its impact to emerge in the data, given that other factors such as the weather, the timing of Christmas Day or the health of consumer incomes can also affect how much is spent in the weeks following [December] 25th from year to year.”
A clear view will not emerge until later in January when retailers cash up for the season. Last year’s Christmas season turned out to be stronger than expected but so far, many analysts expect this one to be lacklustre against which a few winners are likely to stand out.
John Lewis, for example, which is almost exceptional among retailers to start its sales on the day after Boxing Day, reported robust business going into the holiday period.
Visa, the payments processor, predicted earlier this month that UK consumer spending would fall, albeit modestly, this Christmas for the first time in five years. It expects a 0.1 per cent drop in real terms spending compared to a rise of 2.8 per cent last year.
Mark Antipof, Visa’s chief commercial officer, said: “Looking back, consumers were in a sweet spot in 2016 — low inflation and rising wages meant there was a little extra in household budgets to spend on the festive period. 2017 has seen a reversal of fortunes — with inflation outpacing wage growth and the recent interest rate rise leaving shoppers with less money in their pockets.”
However, Visa noted that despite lower spending on clothes and shoes, people are splashing out more on eating out, in bars and at the hairdresser.
Ms Wehrle said: “Inevitably, the long-term discounting that’s happened since November is bound to impact on retailers’ margins and profitability — unless they can sell more volume. That’s the thing we don’t know yet but there’s no reason why consumers would be buying more product.”