Retail: Time to look back and reflect

Christmas and the January sales are over for another year and it’s time to look back and see what lessons retailers can learn for the year ahead with the biggest lesson seemingly being that Santa Claus is no longer coming to town, but instead is now shopping from the comfort of his own home.

A successful Christmas trading period for retailers is a key indicator of how they can expect their performance over the year to look, with a weak Christmas almost always mirroring a less successful year. As such a key indicator of financial performance, the Christmas revenue is a great indicator of consumer patterns and is a great opportunity to assess the market.

Changing consumer spending patterns have seen online retailers showing promising results and traditional high street stores falling short of previous Christmas sales.

The figures

pound coin graphicSome of the disappointing results from the high street retailers came from Debenhams, who reported an overall sales reduction of 1.3% in the 17 weeks leading up to December 30th blaming a ‘volatile and competitive’ market for this reduction, despite the use of some aggressive sales discounts leading up to Christmas. Whilst there was an overall decrease, the digital sales for the company rose by 9.9%, following the general retail trend and Sergio Bucher, CEO, drew particular attention to the market dynamics, stating their results had reinforced their need to “move even faster to implement the cultural and organisational changes needed to ensure Debenhams is in the best possible shape for today’s fast-changing retail environment.” Post-Christmas sales haven’t fared much better and Debenhams have recently announced a £10m cost cutting exercise which includes the axing of 320 store managers.

Other traditional high street stores like House of Fraser and Marks and Spencer’s also reported a disappointing final quarter. Marks and Spencer’s showed a 1.4% decrease in sales for the final quarter of the year and have announced plans to close 14 stores and cut hundreds of jobs.

House of Fraser reported a 2.9% reduction in sales for the six week period to Christmas, and notably a 7.5% reduction in online sales in the same period.

Who are the champions?

menzies branded awardThe retail champions of the period were online clothing stores. Online fashion retailers Boohoo and ASOS showed significant increases on prior year sales revenue with 49% and 30% increases respectively, despite also being hit by a weak winter clothing market in October. Online retailers are winning market share from conventional high street stores by tapping in to a generation of consumers who prefer to shop online and take their style cues from social media, rather than walk along a high street and flick through catalogues. This movement between clothing retailers largely reflects the consumers spending patterns as a whole as the British Retail Consortium (BRC) showed a 15.1% increase in online sales for non-food items, and the BRC believe that at least £1 of every £5 spent in December was online.

Supermarkets displayed positive Christmas results in 2017 with revenue in the lead up to Christmas increasing by 3.8%, marginally ahead of inflation. The biggest winners being Aldi and Lidl with significant sales increases in the final period, showing consumers continue to look to reduce spending on everyday essentials in the lead up to and throughout the festive period. Tesco had a good Christmas recovering from lost tobacco sales after wholesaler Palmer & Harvey collapsed in November to announce like-for-like sales growth of 1.9 percent and a rise in food sales of 3.4 percent. Yet, despite this, Tesco have announced they are cutting 800 jobs in what they call a major restructure to simplify their operations.

So, what can we learn from this?

healthy personWell, the general trend is easy to see. Strong online stores continue to grow while traditional stores are struggling to develop their online presence quickly enough to keep up with the new consumer, who wants the convenience of a quick and efficient digital service.

Consumer demands are evolving and retailers have to keep pace with this. The rise of click and collect, next day deliveries etc. all point to a consumer who wants to and is increasingly getting used to obtaining their purchases straight away. Retailers have to invest and ensure their logistics and fulfilment operations match the demands of their customer.

Spending trends are also evident through supermarket performance which showed that while consumers are willing to part with their cash over Christmas, with general sales increases all round, it was the discount supermarkets which showed the best results, indicating consumers continue to keep a tight string on their finances.

The industry is definitely volatile and competitive and with so many economic uncertainties at present, it’s unlikely to calm down in the near future. Volatility causes threats but it also creates opportunities for retailers who are flexible enough to move and respond to changing consumer demand.

Review, review, review

Menzies microscope iconWhat we are seeing from Debenhams, Marks and Spencer and Tesco is all of them making changes to stay as competitive as they can and it’s important that SME retailers do the same and analyse where their business is going and whether their structure is still suitable for today’s fast-changing environment.

SME retailers don’t have the size of these big players but that can also make them more agile and able to change quicker as consumer demands evolve. SME retailers have to ensure that all decisions made are consistent with their brand identity and that their customers are always at the heart of their strategy.

Online demand is expected to continue to grow and SME retailers need to understand this and ensure the cyber-experience they provide to consumers is both safe and customer-friendly. It should be consistent with their identity and their in-store experience. It is no longer just about the product you sell but retailers need to consider the entire customer journey from initial browsing to final receipt of their product.

Through this online boom, retailers have more data and information on their customers than ever before and they have to use this intelligently as part of their marketing campaigns to communicate with their customers and better target promotions.

Retailers have to start forward planning now and unless they’re willing to learn the lessons of Christmas Past, it could be a very difficult Christmas Future.

For further information on reviewing your business model, please contact Roberto Lobue on 01252 894915 or email

Find out more about Menzies retail sector advisory services.

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