Christmas did not provide the solid start to 2018 retailers hoped for

The run up to Christmas was a nail-biting experience for retailers in 2017.

Slowing retail sales momentum in October, was followed by the hanging of discount signs in many retailers’ windows in November.

Black Friday was a multi-day event for most retailers that participated, spanning over the whole weekend – and spanning the whole month in certain cases. It was also notable that discounting was, in many cases, more like a blanket sale than a one-day spectacular. Retailers like Debenhams and House of Fraser offered between 20 and 40% off many lines, including major and highly desirable brands. With less emphasis on ‘when it’s gone, it’s gone’ promotions, shopper footfall was spread over a number of days and we did not see the heavy concentration of crowds and queuing experienced a few years ago. Aggressive discounting contributed towards an overall lift in retail volumes in November, increasing by 1.5% (seasonally adjusted) compared to the same month in 2016 according to official ONS data.

Black Friday shoppers in Trinity Leeds
Shoppers in Leeds headed out in force to pick up Black Friday bargains

 

For many retailers the Sales signs remained up throughout December with parts of the high street looking like the January Sales were in full swing in the last couple of weeks. Continuing the trend of recent years, reports of lower footfall throughout the period were offset by record numbers of parcels being processed by online retailers.

 

 

Discounting drags high street sales

 

On the high street we saw a mixed bag of results, with Christmas winners and losers broadly reflecting retailers’ trading performances throughout the year.

Debenhams had a tough time. Deep discounting before Christmas was unable to lift sales, with the retailer reporting a like-for-like sales decline 1.2% in the last six weeks and issuing a profit warning. Department store rival House of Fraser too reported poor trading with both online and store sales in decline.

M&S saw like-for-like sales decline 2.8% across clothing and home. The retailer did hold its nerve on discounting, including the decision not to participate in Black Friday. As a result it was always going to be challenging to grow year-on-year demand in a highly promotional market. We wonder whether M&S might look back on its decision to focus on full price sales favourably in a few years time, as the current pattern of high street Christmas discounting demonstrated by competitors is surely unsustainable and damaging to brand perceptions.

John Lewis, outperformed reporting increasing sales by 3.6%, including a like-for-like uplift of 3.1% during the six weeks to 30 December. However, this growth did come at the cost of growing pressure on margins. A sales spike on Black Friday and the retailer’s ‘never knowingly undersold’ policy will both have contributed to margin erosion in a deflationary non-food market.

Next had a decent Christmas, exceeding expectations. Though it did participate in Black Friday for the first time, overall the retailer’s pricing discipline was strong – full price sales increasing by 1.5%. Online sales increased 13.6%, while store sales fell 6.1% during the 54 days to 24 December.

Some of the greatest success stories came from online specialists including AO.com and BooHoo which reported double digit sales increases. B&M also had a cracker with like-for-like sales up 3.9% in the 13 weeks to 23 December, with new store openings boosting total sales growth by 12.9% for the B&M fascia.

Inflation flatters grocers’ sales

Overall food retailers were the better performers of Christmas 2017, with Kantar clocking their combined sales growth during the 12 weeks to 31 December at 3.8%. Though, with like-for-like inflation running at 3.7%, this implies only a marginal increase in sales volumes. As such caution should be exercised when appraising the volume performance of the Big Four.

The discounters were once again the unequivocal Christmas winners among the grocers. With sales up 15% in December, Aldi had an excellent Christmas which helped push the retailer’s total annual sales above the £10bn mark. Kantar data for the 12 weeks to 31 December, showed Aldi’s sales up 16.8% – exactly the same rate as Lidl. We liked Aldi’s Christmas advertising campaign, once again featuring Kevin the Carrot, which hit the right balance between creating emotional engagement and featuring product. But Aldi’s real festive winner was its Specially Selected premium range of products. Quality of product was outstanding given the highly competitive prices, and ranges were well merchandised in-store. During the run up to Christmas 58% of shoppers told us that they’d be looking for ways to make Christmas special without breaking the bank –Specially Selected clearly hit the mark, with sales of the range ahead 30%. Overall Aldi and Lidl attracted an additional 1m households to shop at their stores in the last three months according to Kantar. Discounters certainly have the momentum heading into the New Year.

Among the Big Four, Tesco’s momentum continued with the grocer emerging as the best performer with Kantar showing the retailer’s sales up 3.1% during the golden quarter. Asda, Morrisons and Sainsbury’s increased sales by 2.2%, 2.1% and 2.0% respectively during the final quarter. Despite the positive spin, the Big Four’s results need to be viewed in the context that they all lost market share in the final quarter. Aldi and Lidl continue to present a major headache for them.

 

M&S food suffered this Christmas, with like-for-like sales dipping 0.4%.The evidence suggests that many shoppers did not trade up to M&S this Christmas with the likes of Tesco, Morrisons, Aldi and Lidl all reporting strong uplifts in their premium ranges.

 

FInal thoughts

We’ll know next week (19 Jan) how retail performed in December when the ONS releases the official sales data. However what we have seen is an overall picture of total sales growth, driven by inflation and space. Retail volumes have stagnated, margins are under pressure and few retailers had a truly good Christmas. 2018 was always going to be difficult for retailers – Christmas 2017 did not provide a solid start for most.