Weekly Retail & Leisure News - 23 January, 2018
Christmas trading patterns have shifted fundamentally in the UK market as a result of the growing influence of Black Friday and the maturing online commerce environment. Analysing Christmas trade, and identifying patterns, growth and trends has become a complicated exercise. The macro picture, however, appears to be one of subdued overall spending growth. Sales volumes in the final quarter (perhaps the best measure of overall Christmas trade, which accounts for the bringing forward of sales due to the Black Friday effect) were up by 1%, according to the ONS. While this represents softening growth, it is growth nonetheless, and should provide a glimmer of hope to retailers as they continue to battle the challenging market conditions.
At a sector level, grocery was the overall stand out performer, partly thanks to food price inflation and consumers’ willingness to spend, where the offering was right, on premium and luxury ranges. The value grocers were the biggest winners, with the likes of Aldi and Lidl both gaining market share, and Lidl recording record UK sales in December, up 16%. Asda, Co-op and Morrisons were the other out-performers, while Tesco, Waitrose and Sainsbury’s all reported positive like-for-like sales, albeit below market expectations. While there has been progress on refining business models and cutting costs in the grocery sector, growth has fundamentally been driven by inflation. As inflation drops later in the year, food & grocery will revert to a low-growth, mature market, with the discounters continuing to take market share.
In the department and variety store sector, competition remains fierce, particularly for the midmarket operators. Debenhams, M&S and House of Fraser all posted disappointing sales growth, despite (or maybe because of?) continued promotional activity across the sector. These midmarket department stores are struggling to define their place in the market, with the volume of stores and store size proving to be a disadvantage. Conversely, the premium and luxury operators, with a sharper customer proposition and brand, and fewer stores, fared much better over Christmas. Fortnum & Mason, Selfridges and John Lewis (in addition to B&M at the value end) all enjoyed strong like-for-like sales growth, as domestic shoppers boosted the strong post-Brexit tourist trade.
In the fashion, footwear and accessories sector, the younger/niche fashion retailers benefitted over the festive period, with fewer, more carefully located stores and unique, in-store experiences attracting footfall and consumer spending. Fat Face, Superdry, Joules, Quiz and Ted Baker were among the strongest performers, with robust online growth both the principal driver, and the common denominator. By contrast, Mothercare and Burberry posted disappointing online (and overall) numbers, with Mothercare’s ecommerce sales declining by 6.9%. In this category in particular, it is retailers’ ability to deliver a seamless, successful omni-channel offer that differentiates.
Perhaps surprisingly, despite the negativity around the sector, over 85% of retailers reported sales growth (either LFL or total) over the Christmas period, often strong total growth driven by online sales. All retailers in the personal goods, homewares (with the exception of Carpetright) and leisure sectors reported growth, with leisure sales particularly robust. However, with over 20% of non-food sales now online, according to both the BRC and ONS, and total footfall down 3.5% in December compared with last year, it is clear that the way we shop has shifted fundamentally. The role of the store remains critical, but this year we will see a reduction in both the number of shops and retailers, as some of the national multiples reduce their store portfolios, and weak (or boring) retailers fall by the wayside. That’s retail.
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Director, Head of UK Retail & Leisure
+44 (0)20 7318 7838
Director, Head of Retail Research (UK & EMEA)
+44 (0)20 3147 1155