Stores click up a storm online as retailers battle to lure cash-squeezed consumers over festive period
The glittering lights over Oxford Street in London could not escape the shadow of austerity this Christmas, making for a hard-fought festive period among the winners and losers of the retail sector.
Frugality hit all areas of the high street, with fashion chains slashing prices by up to 70% to lure shoppers in the runup to Christmas and supermarkets fighting hard with promotions and vouchers to secure their share of dwindling sales volumes.
With pay increases failing to keep up with inflation, Britons have seen their budgets increasingly squeezed and have become much more savvy shoppers. Kate Calvert of Seymour Pierce said: “Because of increasing pressures on consumer budgets, you basically have to give the consumer what it wants. It’s only got a limited amount to spend and can be choosy.”
Non-food retailers were particularly hard-hit, as shoppers cut back on unnecessary spending. Next kicked off the reporting period with a strong set of numbers, but noted that Britons spent “slightly less than last year”.
Retail chiefs squabbled over whether the high street was more promotional than usual, with the boss of Next, Simon Wolfson, arguing that discounting had been lower, while Debenhams’ chief, Michael Sharp, said higher. “Next need to get out a bit more,” he said. “I know that the high street was more promotional because I was out every day in all of my competitors’ shops.”
Calvert sided with Wolfson after chatting to players across the sector, saying: “Everyone we’ve spoken to has said the promotional activity was less on the high street rather than more. Most people said Debenhams have led it as well. They have got a bit too hooked on the promotional drug.” As a result, she fingered Debenhams as one of the Christmas turkeys, despite its 5% rise in like-for-like sales over the festive period.
With the exception of Debenhams, she said retailers have generally managed their margins better. “[They] have realised that a difficult trading environment is the norm. They are always planning for sales being flat or down, so you just don’t have the overhang of stock out there like you did in 2008. The retailers are more practical in the way they view their business.”
Then there was the question of timing. With the 25th landing on a Tuesday, shoppers left their purchases later and the 23rd – typically the biggest trading day – fell on a Sunday, with its limited trading hours. Calvert said: “Christmas did come, but it came incredibly late. Retailers did a good job of managing it, that demonstrates the strength of UK retailers more generally.”
The supermarkets fared a little better than their non-food counterparts but volumes still declined. The consumer research firm Kantar Worldpanel said the grocery market grew by 3.2% over the 12 weeks to 25 November but, with inflation running at about 4.5%, that points to lower volumes. Fraser McKevitt of Kantar said: “The competition is very fierce among the grocers because it’s a zero-sum game for them. People aren’t spending huge amounts on discretionary items so it’s a share game.”
The “game” is fiercely competitive, with four main players squabbling over decimal points of share, in a climate of rising food prices and shrinking household budgets. Kantar figures showed that, of the big four, only Sainbury’s managed to increase its share, by 0.1% to 17.1%. But Tesco continues to dominate, taking 30.5% of total spending at the grocers in the runup to Christmas. The biggest loser was Morrisons, which saw its share shrink from 12.4% to 12%, as its more affluent customers defected to rivals offering an online store, while hard-up shoppers traded down to discount stores.
Among the grocers, it was these discount chains which were the big winners over Christmas, with Aldi, Lidl and Iceland increasingly seen as a place to do a full-weekly shop. Aldi enjoyed sales growth of more than 30%, taking its market share to a record 3.2%.
The Kantar figures also demonstrated a polarisation of society, with 47% of shoppers tightening their belts in the runup to Christmas, while 48% increased spending by 4.5%, in line with inflation. There was also evidence of a growing regional divide, with retailers reporting stronger sales in their southern stores than their northern counterparts. That hit Morrisons – with its traditional northern heartland – and benefited upper- to middle-class favourite Waitrose, which is concentrated in the south.
The biggest Christmas winner by far was online, with internet shopping up 18% in December compared with same period last year, according to figures from the British Retail Consortium. New “click-and-collect” services, meanwhile, saw even more impressive growth. Tesco said 5% of its online customers opt to pick up their shopping, rather than wait in (and in some cases pay extra) for a delivery, just a year after the service was introduced. A series of retailers touted online as a key driver for sales – from Tesco to House of Fraser – while Morrisons blamed its 2.5% decline in like-for-like sales largely on its lack of an online store.
But this shift brings its own problems for retailers. Debenhams said the faster-than-expected growth in internet sales would push warehousing and distribution costs higher for the year. Calvert said: “The big question, as Debenhams has shown, is the cost element of online. It is generally less profitable. [Retailers have] got to get it slicker in terms of maximising volume and leveraging it.”
As to the biggest loser, that would have to be Jessops, which went into administration after dire Christmas trading. Hit by changes in the way people buy cameras and the growing use of smartphones to take photographs, Jessops called in administrators PricewaterhouseCoopers on Wednesday after last-ditch talks on financial support for the business between directors, funders and key suppliers had ended in “irreconcilable differences”.
The decline of the camera chain follows a string of failures last year – including Comet, JJB Sports, Game, Peacocks and Blacks Leisure – and is likely to be the first of many this year.
David McCorquodale, head of retail at KPMG, said: “January will be a tough month for retailers as consumers face up to their credit-card bills after Christmas, and it’s likely 2013 will bring more of the same challenges. While consumer confidence remains low, shoppers will tighten their belts and rein in their spending, making life difficult for the average UK retailer. There will be no boom and it’s likely more than a few will go bust.”