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Blog // 17/01/2019

Christmas Retail Reflections

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Time to look back and reflect – Christmas is over for another year and with retailers starting to announce their sales performance over the festive season, it’s a good time to look back to see who has been successful or not and also try to assess what the future has in store.

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.

The bad news

closed sign on door2018 saw a lot of disruption to the retail industry with many high-profile failures and the year ended as it began with HMV entering administration swiftly followed by Savile Row tailors Hardy Amies.

And even where retailers haven’t failed, many have posted less than encouraging initial sales figures.

Debenhams, who have already announced they are closing 50 stores, continued its struggles saying sales fell 5.7% in the 18 weeks to 5 January.

Marks & Spencer said that like-for-like sales were down 2.2% in the 13 weeks to 29 December.
Clothing retailers haven’t fared much better with Fatface saying store sales fell 6% in the 5 weeks to January 5 and Bonmarche’s chief executive said that trading was “significantly worse even than during the recession of 2008-09”.

Even at stores like Next which recorded a 1.5 per cent increase in full price sales between 28 October and 29 December this was principally driven by increases in online sales as sales from stores continued to drop.

The British Retail Consortium have gone as far as to call it “the worst December sales performance in 10 years.”

Is it all doom and gloom then?

blue arrow surrounded by white arrowsIt is a challenging environment for all retailers at the moment but there have been some success stories.

Tesco enjoyed its best Christmas in nearly a decade with like-for-like sales growing by 2.2% in the six weeks to 5 January, boosted by higher demand for its cheapest range.

The discount supermarkets continued to perform well with Aldi saying it made almost £1bn in sales during December in its best-ever Christmas trading, with sales 10% higher than the previous year. Lidl sales jumped 16%.

Selfridges reported sales up 8% in the first 24 days of December after a string of promotional events aimed at drawing customers to their store.

So, what can we learn from this?

question marksWell, trading conditions are tough for everyone. With the looming shadow of Brexit, consumer confidence is fragile and retailers are having to work hard to persuade cautious customers to part with their cash.

Whilst online sales have taken less of a beating, footfall in the High Street continues to decline and consumer demands continue to evolve. Customers are shopping later and later in the period and trying to get the best possible deal they can.

Bearing all this in mind though, the big thing to remember at this stage is that whilst the retailers have announced sales figures, we are yet to truly see how this impacts on bottom line results and after a festive season which saw widespread discounting, underlying profits will be the true measure of who won and lost this Christmas.

This is best demonstrated by John Lewis who despite a rise in sales of 1.4% for the seven weeks to January 2019 reiterated the view that their full-year profits would be substantially lower than last year. This is primarily fuelled by their “never knowingly undersold” promise which has forced them to match the price-cutting of other competitors.

M&S sales figures weren’t great but at this stage, they haven’t changed their profit forecasts which is telling.

What does this mean for SME retailers?

Roberto Lobue - Menzies AccountantThe festive trading results have confirmed much of what we already knew. Trading conditions are tough especially for bricks and mortar stores. Retailers with a good online offering are likely to be faring better but aren’t impervious to the economic conditions. There are likely to be more high-profile failures in 2019 and even successful retailers can’t sit on their laurels.

Whilst customers are undoubtedly cautious and purse strings are tight, discounting isn’t always the answer and retailers need to be taking steps to strengthen their business model and establish a platform for profitable growth.

Download our latest Retail White Paper.

Find out more about Menzies retail advisory services.

For further information on reviewing your business, please contact Roberto Lobue on 01252 894915 or email rlobue@menzies.co.uk.

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