Christmas sales reports are a unique opportunity to compare and contrast many different retailer performances at a moment in time. While reporting protocols may vary the headlines in the days after the Christmas break soon produce a sense of winners and losers.
As is traditional Next were one of the very first to report and sent a shiver down many spines – not least the financial markets. As Next reported 0.4% decline in sales for 54 days to Christmas Eve and a reduced profit forecast, many were braced for a slew of poor results.
However the picture has emerged as much more positive than expected, with December footfall rising by 0.8% compared to the same period in 2015 (Springboard/BRC).
The Big Four supermarkets all posted positive results with Morrisons the front runner (albeit from a low base). Using “The Best” range the company tapped into its shoppers’ desire for a bit of luxury over Christmas. An increase in non-grocery sales suggested that Bhs shoppers may have moved part of their spending to supermarket clothing & footwear. The strong performance from Lidl and Aldi was based on new store openings; with both taking a slightly smaller share of the market in December than the rest of the year as consumers reverted to traditional retailers during the festive season.
More premium retailers such as Hobbs, Radley and Reiss also performed well over the period, and Fat Face, who chose not to discount until Boxing Day, posted a healthy sales rise.
M&S were one of the surprises over Christmas, posting a 2.3% rise in the 13 weeks to 31 December, marking the first increase in clothing and homeware sales for two years and suggesting things may be beginning to turn around at the retailer.
The majority of those retailers reporting healthy sales rises have also traded well online over the season. Mountain Warehouse, for example, enjoyed a successful festive season, recording a 13.6% rise in like-for-likes and an impressive 32% growth in online sales.
Pure-play retailers such as Asos and Shop Direct had an outstanding Christmas. The growth at Shop Direct was boosted by sales at Very, where 68% of sales now come from mobile.
In isolation these figures suggest good news for many FSP clients who will be targeting retailers for 2017 openings. With only 2 major schemes opening in 2017 – The Lexicon Bracknell and Westgate Oxford – established centres and retail parks should be well placed to attract new stores.
However while many rivals didn’t suffer the decline in sales reported by Next, the challenges for 2017 as outlined by Lord Wolfson are likely to affect all.
- Inflation – will reduce consumer spending power
- Weak Pound – will push up costs for those sourcing overseas. The up side of this is increased tourist spending but this only benefits certain retailers and in certain parts of the country, e.g. stores in London’s West End and duty free stores at London’s Heathrow airport enjoyed a 35% increase in tourist spending over the festive season. According to Worldpay. Manchester experienced a 19% rise, and Edinburgh a 24% increase in spending on foreign credit cards
- Interest Rates - spending on credit cards rose +2.6% overall (Visa) driven primarily by food & beverage and online but even with high street stores showing an increase. This continued reliance on credit has pushed credit card debt to a record £66.7bn in the year to November according to Bank of England figures. The Bank said that consumer credit, which means all credit cards and car loans, had risen at its fastest rate in 11 years, up 10.8% over the last 12 months period to reach £192bn. The average household in the UK now owes a record £12,887, before mortgages are taken into account, according to the TUC. If interest rates start to increase this debt will be more expensive
- Living Wage – the introduction of the Living Wage has already seen retailers including B&Q and Tesco take steps to counter the effect, such as price rises and changes to staff contracts relating to overtime pay and weekend working
- Business Rates – the looming rises in April are causing concern and unrest among retailers, with many smaller retailers wondering how they will cope. High street shops’ bills will rise by £1.56bn out of a total projected rise of £2.26bn for the retail sector through inflationary rises. As a result, the average small shop will have to pay an extra £3,663 in rates over the next five years. This will undoubtedly push some retailers over the edge as they struggle to keep up their payments. More importantly, research by Conlumino has found that almost three-quarters of international retailers are opting to expand outside of the UK because of the onerous business rates system. The research suggests that had these retailers opened in the UK, they would have generated 75,000 new jobs, £11.9bn in rent and contributed £6.7bn a year in rates and income taxes
So looking ahead what is the likely prospect for 2017? FSP believes that it will be a challenging year for the reasons already outlined. Retailers will continue to open in stores but only in markets perceived to be under-served, and landlords will need to present a compelling case to attract occupiers. And online will continue to grow. With online sales in 2016 rising by 16% to £133bn (IMRG), boosted by a 47% rise in the number of transactions made by on mobile phones, retailers will need to make sure their experience online and on mobile is as good as it is in store in order to continue create synergies between the two.