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The Winners and Losers of Christmas 2018 - Part 1

Monday 25 February 2019 Data Insight & AnalyticsRetail Consultancy

Laura Symes's picture
By Laura Symes

This is the first part of our 2018 review - you can read part two here.

Now that the dust has settled on the Christmas trading perspective, we thought it was worth taking a step back and looking at the current state of play. 

This part covers how the grocery, fashion and non-fashion brands got on. Part two explores the impact of Black Friday and the 'Super Weekend' as well as the changing fortunes of the UK's department stores.

 

It wasn’t all doom-and-gloom for the retail sector over the festive period. In general, supermarkets experienced a good Christmas with Tesco reclaiming their mojo and encountering its best in 10 years. Fashion retailers were saved by a late surge across all channels, outlets continued to thrive, and department stores endured a painfully weak trading period. There were, of course, exceptions to these – some of which we explore below.

Click-and-collect continued to be a key driver of footfall into stores with more retailers than ever endeavouring to create a seamless shopping experience. The growing preference towards the ease of click-and-collect offers shoppers the lower/free delivery charges and convenience that is now expected over the festive period where speed and timing is everything, and even rivals that of home delivery.

 

Grocery performance was strong

Growth came in unexpected sectors - The grocery store ‘Booths’ experienced a 15% growth in click-and-collect sales over the New Year, crediting their performance to the popularity of their own-brand products. Food generally remained insulated from online migration - though among the retailers that performed exceptionally well over the festive period, and don’t have online presence, are Aldi and Lidl. These two also continued to open stores in 2018 which was often overlooked given the headlines on CVA’s.

Aldi, whose full year operating profits for 2017 rose by 26%, opened 24 new stores in November and December alone. Lidl experienced an 8% increase in Christmas sales thanks to their loyal customer base and outperforming ‘Deluxe’ food range.

Mid-market supermarkets Morrisons and Tesco were notable winners reporting increased sales with Tesco experiencing the 12th consecutive quarter of growth. Morrisons’ success can be attributed to the wholesale division with the likes of Amazon and McColl’s contributing to a 3% rise in like-for-like sales. In contrast, it was not such a happy story for Mark’s and Spencer who, although saw online activity increase by 14%, driven by business wide improvements, saw global sales drop 15.1% to £262m.

 

A less encouraging outlook for Fashion

Unlike grocery, cross-channel/multi-format shopping in the fashion sector is very well established and presents a challenge in how you unpick performance in the results with many retailers insisting on reporting on and offline as if they were two separate businesses trading through multiple windows, not one brand trading to one customer. Nonetheless, many retailers took the opportunity to blame the high street for their performance, although it seems closing stores also hit profits.

New Look had a poor Christmas. Like-for-like sales fell in-line with expectations, dropping 7.5% in December, inhibited by several store closures. Retailer Russell and Bromley were also hit by store closures with a drop of 55% in net profits to £6.2m, bringing 2018 to a close as being the third consecutive year of declining sales. Bectin, parent company of The White Company and Charles Tyrwhitt, also took a major hit to its annual profits with operating profits falling by 33% year-on-year to £17.6 m.

Next, one of the biggest click-and-collect retailers in the country, and who know that most shoppers use on AND offline in the same trip, also reported both channels separately. Online sales rose, whilst store revenue declined by 9.2% in the 9 weeks ending January. Positive online growth was attributed to an increase in in-store collections which has accounted for more than 77% of top line growth for the period 2010 to 2015. Whilst Next reported in their trading update that instore sales were down -7% and online sales were up 14.9% this doesn’t reflect the role of the store. Based on their annual report and our online retail halo survey, we estimate that at least ½ of Next’s online sales engage with a store – either through in-store research, click-and-collect or returns. Taking this into account, stores actually saw a growth of up to 2%. These numbers are backed up by the data in Next’s annual report which show that the cost of fulfilling an online order in store is 89p vs the £3.99 that it costs to deliver direct to a customer, for Next the incentive to fulfil online in store is clear.

There is no reason to think these numbers are not indicative of the sector as a whole and shows the role of the store is far more complex and integral to performance than the headlines suggest.

Brand familiarity and strong online presence, mixed with some last-minute cold weather in December driving clothing sales, meant Next is one of the retail fashion winners for Christmas trading 2018.

Amid the difficult retail market conditions, in the Eurozone, Primark outperformed the fashion sector with global sales up 4% for the 16-week period ending January with four new stores that opened in Seville, Almeria, Toulouse and Berlin.

In the UK, Primark’s sales, which are solely from physical stores, were lower which reflected disappointing decline in like-for-like sales over the Christmas quarter.

 

Non-fashion is in fashion

Arguably, it was the non-apparel retailers who were the top performers in the run-up to Christmas, with shops such as Hobbycraft jumping on the customer experience bandwagon and stocked custom-made decorations and ran interactive workshops that attributed to a strong sales boost on and offline. Giving reason for shoppers to visit a store and utilising their physical space by offering a customised in-store experience therefore becomes the point-of-sale for other products.

The Body Shop’s latest marketing ploy saw stores turn into “activist hubs” as part of renewing the brand focus, giving an edge over competitors such as Lush.

The ‘evolving’ stores were evidently very popular over the festive period with countless pop-ups sprouting up all over the country. London especially loved a pop-up with Notonthehighstreet.com, Amazon and an abundance of alpine themed taverns showcasing their independent goods and services.

However, non-fashion retailers such as HMV and Halfords did not perform well. The financial year 2018 was shaping up to bring a positive outcome for the British automotive retailer, although December delivered a reversal of what was expected. Like-for-like group sales dropped by 2.2% in the 14 weeks to January. It’s predicted that profits will remain mostly flat due to diminishing consumer confidence amidst the current financial climate.

 

We look at the impact of Black Friday and the 'Super Weekend' as well as the changing fortunes of the UK's department stores in part two.

 

Get in touch if you would like to find out more about how CACI can help you optimise your retail network.

Part 1 of 2: Now that the dust has settled on the Christmas trading perspective, we thought it was worth taking a step back and looking at the current state of play.

The Winners and Losers of Christmas 2018 - Part 1