Key economic indicators and consumer confidence moved in a positive direction throughout 2015, however Christmas trading was incredibly tough for UK retailers. In keeping with recent years, pre-Christmas discounting was rife, and we anticipate that any increases in sales volumes are likely to be offset by margin erosion. But how did it unfold in 2015?
Most retailers kicked off Christmas at the beginning of November with their festive TV campaigns. Typically retailers opted for more upbeat ads, with an emphasis on Christmas magic and fun, pushing value messages down the agenda.
Black Friday on 27th November, marked the start of Christmas shopping for many households. Interest in the event swelled this year and, despite the likes of Asda scaling back their participation in the event, record numbers of shoppers got involved. Some retailers reported sales fell short of their expectations and we observed a clear shift towards an online event, as footfall disappointed across many high streets – in part because of the well-publicised horror stories of a minority of shoppers fighting in-store in 2014.
Black Friday highlighted the real importance of a robust online offer and platform – Argos suffered a website shutdown and even the mighty John Lewis site crashed on Black Friday. We were impressed by retailers like Dixons Carphone that planned and executed a faultless Black Friday and we look forward to seeing how they have performed.
Very much a multi-day event in 2015, Black Friday heralded the start of pre-Christmas discounting. For many retailers discounting really never stopped, with the lack of clear established pricing from retailers training shoppers to expect to spend 25 per cent less in many stores – clearly this January there will a significant need to go back to the drawing board for a number of the high street giants.
The most significant issue during the festive period was that Christmas trading patterns were affected by unusually mild weather. December temperatures in excess of 15 degrees Celsius were hardly likely to put shoppers in a festive mood – it felt like Christmas really didn’t happen until the Saturday before (19th) and there was shopper apathy up to that point. Furthermore sales of coats, gloves, scarfs and hats will have weighed on the performance of even the strongest clothing retailers.
The result was substantial discounting during the last couple of weeks before the 25th. In the final week a striking number of retailers launched full January Sales in an effort to clear surplus Christmas stock before the New Year. The retailers that held their nerve and didn’t move into sale mode will be glad of that decision now – but we believe that was in the minority.
Retail winners and losers
Over the next few weeks retailers will start releasing their Christmas trading figures. While it’s too early to anticipate precise details of the winners and losers, it is clear from what we know so far that winners will be few and far between. That Next – usually the star clothing performer – reported weak Christmas trading (sales up 0.4% over the period) sets a worrying benchmark.
Where there was significant growth, we expect much of it will have come from online players. In particular Amazon looks set to emerge as a key winner. The retailer’s Prime membership will have been bolstered by discounted membership fees on ‘Prime Day’ – 15 July – creating a new army of loyal shoppers keen to utilise free next day delivery. And Amazon’s introduction of one-hour delivery on many products in London placed it into a league of its own in terms of online convenience. The retailer already reported a strong performance during Black Friday and we expect this momentum was maintained throughout the period.
Among the grocers, the tale of winners and losers will have followed the story of the rest of the year. Confident discounters, trading on quality credentials on top of their leading value perceptions, encouraged more shoppers into their doors. Indeed, based on the additional stores added to their estates alone, Aldi and Lidl will be clear winners.
While the annual debate about which of the big four won Christmas is inevitable, all of them will be reporting lacklustre results by historic standards.
Overall Christmas 2015 looks set to be particularly weak, especially on the high street where footfall was low, and will inevitably lead to profit warnings over the next few weeks. For all the discussion about the pros and cons of Black Friday and its impact on trading patterns and margins, this year will be remembered for its extraordinary weather and subsequent discounting at levels last seen during the peak of the financial crisis. For savvy shoppers on the lookout for bargains however, this Christmas 2015 will be remembered as one of their best.