Weekly Retail & Leisure News - 24 January, 2016
JLL's annual Christmas Trading Update reveals that despite Brexit fears, fluctuating consumer confidence and declining footfall, the UK retail market benefitted from buoyant Christmas trade. Over 90% of UK retailers and leisure operators who have disclosed performance figures registered positive like-for-like (LFL) annual growth for the key Christmas trading period, with almost half delivering sales growth (either LFL or total) in excess of 5% year-on-year.
There are several mitigating factors, including the extra shopping days as a result of a Sunday Christmas, the relatively weak comparative period last Christmas, and the impact that discounting will have on profits for some. However, a diverse range of retailers, from grocery to department stores to fashion chains, have demonstrated LFL growth, suggesting that the uplift was down to consumer spending patterns, rather than the shifting fortunes of individual companies. This contrasts with the relatively gloomy official statistics for December trade from ONS, which showed sales volumes fell 1.9% in December (the BRC measure was more positive, with 1.0% growth, and appears more in-tune with retailer evidence). These mixed messages highlight the importance of measuring Christmas performance over a broader 2-3 month period.
On paper, the grocers were amongst the big winners this Christmas, as shoppers spent nearly half a billion pounds more in supermarkets compared to last year, with many drawn to a more premium offering. Waitrose, Morrisons, Tesco, M&S Food and Sainsbury’s all reported positive LFLs, with Morrisons topping the table with 2.9% LFL growth. The discounters continued to perform well, with Aldi (which does not report on LFL sales), recording total sales growth of 15% in December. These are clearly promising results, the caveat being that the turnaround for the Big 4 in particular should be set against a backdrop of relatively weak performance the previous year.
The department and variety store sector also saw growth across the board, as their vast product ranges and investment in both in-store experience and digital strategies boosted sales. Fortnum & Mason recorded 16% LFL growth, benefitting from strong growth online (+22%), with e-commerce sales outstripping in-store sales for one day during Christmas, for the first time in its history. House of Fraser reported a 2.7% uplift in LFLs, driven by investments in its online platform (online: +17.8%), and John Lewis reported LFL growth of 2.7% (online: +11.8%). Debenhams’ strategy to shift focus onto beauty, gifting, home and food, with less dependence on fashion proved successful, with 5% LFL growth (online: +17%), while Marks & Spencer reported a 2.3% rise in LFLs for their Clothing and Home departments, helped by five extra trading days of the Christmas sale (online: +9.4%).
Elsewhere, the fashion market recovered well following the early shock of Next’s negative results (total sales: -0.4%). Premium retailers performed particularly strongly, with Burberry, Superdry, Joules, Reiss and Ted Baker all reporting double digit growth. Burberry topped the Christmas trading table, with c.40% LFL growth, boosted by international tourists taking advantage of the weak pound. Pricing was a key driver of performance in the fashion sector, as retailers generally took a more strategic, targeted approach to discounting and promotions over the Christmas period, and reaped the benefits as a result.
In summary, it is clear that the strong retailers with relevant customer propositions and digital strategies continue to outperform. The remainder of 2017 is likely to bring challenges to the retail sector, as the themes we highlighted in our
Brexit note, such as rising costs, inflationary pressures, margin pressure and squeezed consumer spending, play out. The
perfect storm may be on the horizon, but for the time being, the results from the Christmas period highlight yet again the underlying resilience of the UK consumer. The winners going forward will be those retailers that identify (and grasp) opportunities, where others see only obstacles.
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Director, Head of Retail Research (UK & EMEA)
+44 (0)20 3147 1155
Director, Head of UK Retail & Leisure
+44 (0)20 7318 7838