Chloe Rigby highlights recent industry changes
High Street retail sales had their worst Christmas trading period since the beginning of the crash in 2008, with December retail sales decreasing by 0.7% on a like-for-like basis from December 2017, when they had increased 0.6% from the preceding year.
According to the latest figures from the British Retail Consortium (BRC), Over the three months to December, in-store sales of Non-Food items declined 2.8% on a total basis and 3.9% on a like-for-like basis. This is below the 12-month total average decline of 2.5%. The decline was the worst since April.
On the flip-side, online sales of Non-Food products grew 5.8% in December, against a growth of 7.6% in December 2017. This is above the three-month average of 5.5% but below the 12-month average of 6.9%. Online penetration rate increased from 29.1% in December 2017 to 31.2% last month.
“Squeezed consumers chose not to splash out this Christmas with retail sales growth stalling for the first time in 28 months,” says Helen Dickinson OBE, Chief Executive, British Retail Consortium. “The worst December sales performance in ten years means a challenging start to 2019 for retailers, with Business Rates set to rise once again this year, and the threat of a No-Deal Brexit looming ever larger.”
She continues: “The retail landscape is changing dramatically in the UK, while the trading environment remains tough. Retailers are facing up this challenge but are having to wrestle with mounting costs from a succession of government policies – from the Apprenticeship Levy, to higher wage costs, to rising business rates.
She concludes: “Retail makes up 5% of the economy, yet pays 10% of all business taxes and 25% of all business rates. This is neither fair nor sustainable. The Government should urgently look into reforming the broken business rates system and champion the future of retail in the UK.”
David Marshall, Professor of Marketing and Consumer Behaviour at University of Edinburgh Business School agrees: “Shoppers are cutting back on spending as the cost of living rises and uncertainty looms over what will happen post Brexit. As food prices continue to rise, shoppers are increasingly savvy when it comes to prices and looking for good value. In response, discount supermarkets continue to grow their market share and the shift in emphasis towards price competitiveness is likely to continue across the grocery sector.
“In addition, seasonal buying patterns have changed,” he adds. “Black Friday, Cyber Monday and a surfeit of pre-Christmas discounting in stores has impacted consumer buying patterns and company margins in a traditionally strong trading period. Consumers have shifted some of their seasonal buying forward to take advantage of the promotional offers.”
While the financial results for a number of key Top500 UK retailers show the High Street took a big hit, the picture is different online.
Clear winner is Shoezone, which logged overall revenue growth of just 1.8% for the year, but digital revenue increased 19.9% to £9.8m (2017: £8.2m) achieving profit contribution of £2.6m (2017: £2.0m). More interestingly, 79% of its online sales came from mobile.
According to the company, the ’mobile first’ design and implementation continues to deliver strong results with an increase in conversion to 3.68% (2017: 3.55%), however desktop conversion has fallen marginally.
M&S, which saw like-for-like clothing and home sales drop 2.4% over the 13 weeks to 29 December, saw a strong online performance for Home and Clothes, logging UK revenue up 14%, supported by an increased focus on digital marketing together with improvements to delivery and operations at Castle Donnington. Womenswear online growth also significantly outperformed expectations, says the retailer, driven by areas including dresses and knitwear reflecting our “Must-Haves” and social media campaigns.
Debenhams – which was tipped to log almost catastrophic results for Christmas – performed better than expected and online saw significant growth. Group digital sales rose 6% in the six week period over peak against a strong comparative performance, delivering two year growth of over 20%.
Sainsbury’s, which logged woeful overall sales – especially disappointed in the performance of Argos overall – which reported online sales growth of 6% in Q3.
However, Tesco bucked the High Street trend and reported a modest increase in sales and also saw online blossom in 2018. Online LFL sales increased by 2.6% over the Christmas period. This included Tesco’s biggest-ever sales week in online grocery, with nearly 51 million items delivered and 776,000 orders. The retailer has also seen a 3.8% year-on-year increase in Delivery Saver subscribers to 491,000, compared to Christmas last year.
John Lewis, which also did well on the High Street this Christmas, saw its best ever peak online in 2018, with digital sales up by 12.8%. Overall, however, heavy discounting across all channels mean that profits are all but flat at JLP this year.
A number of pureplays did well over the peak season with Boohoo and Shop Direct benefitting from shoppers’ changing behaviour to buy more of their shopping online.
Sales at Shop Direct, operator of the Very and Littlewoods pureplay department stores, reported a 3.7% sales boost for the seven weeks to December 28, compared to the same time last year.
The fastest growth came at Very (+8.8%), as site visits across Shop Direct brands rose by 8% to 107.3m, and mobile sales grew by 12.7%, year-on-year (YOY). Some 79% of online sales came from mobile devices, up from 74% last time. Shop Direct said that its sales growth –which came across product categories – was achieved while maintaining profit margins, despite an extended Black Friday period of discounting. Very and Littlewoods were among the first to launch Black Friday campaigns – on November 9 – and they ran until November 27.
Shop Direct points to Very’s digital out-of-home advertising campaign, which featured dynamic sales messaging in high street locations, provided shoppers with real-time information about online pricing, stock availability and demand for offers. At the same time, it says that the customer experience improved thanks to the integration of IBM Watson’s machine-learning technology with its Very Assistant, the in-app chatbot.
Meanwhile, fast fashion retailer Boohoo saw its sales rise quickly in the Christmas quarter of its financial year. Sales grew to £328.2m in the four months to December 31, up by 44% on the same time last year. Already impressive growth of 33% in the UK was thrown into the shade by a 78% boost to revenue in the US, and 57% in the rest of Europe. Unlike some competitors, Boohoo also successfully maintained its profit margin, up by 170bps to 54.2%.
Sales at Boohoo grew by 15% to £163.5m, while PrettyLittleThing saw growth of 0.5% to £144.2m and Nasty Gal grew by 74% to £20.6m. Boohoo expects to see full-sales grow ahead of expectations and profits to remain on target, with growth of between 9.25% and 9.75%. Boohoo and PrettyLittleThing are both Top250 retailers in IRUK Top500 research.
New Look has reported that its move to prioritise profitable sales over sales growth had dented its online sales in the first half of its financial year – but that its store sales were more stable as a result.
The update on New Look’s turnaround strategy came as the fast fashion retailer, ranked Leading in IRUK Top500 research, unveiled plans to reduce the amount of debt on its balance sheet through a debt-for-equity swap.
New Look said that sales continued to fall in the first half of its current financial year, but pointed to an improving overall trend. Total UK like-for-like (LFL) sales fell by 4.2% in the first quarter of its financial year, but improved to a fall of 2.3% in the second quarter. Within that, said New Look, retail store LFL sales stayed flat but ecommerce sales fell as the company moved to focus “on profitable sales rather than absolute sales growth.” The figures, it said, also reflected the impact of an upgrade to its online platform in September. In the third quarter, it said, LFL sales had improved again (+0.9%).
Sales were ahead of last year in October (+4.8%) and November (+8.9%) but down in December (-5.7%) as a result of wider trends including falling in-store footfall and an industry-wide move towards discounting. Total UK sales were also hit as stores closed as a result of its CVA (company voluntary agreement) to restructure its store estate. Now, however, says the company, it is better placed than competitors to flex its business between stores and online.
Athleisure retail brand JD Sports Fashion says its sales were 15% up across its sports fashion brands in the 48 weeks to January 5. Like-for-like sales, it said, were growing by more than 5%, including positive performance over Black Friday and the Christmas period.
It also says that its policy of steering clear of “short-term reactive discounting” meant it had maintained profit margins. All of this, it says, is down to its commitment to multichannel retailing.
“Given the well-publicised challenges within the wider UK retail market, we are pleased with this trading result which further demonstrates the robust foundations of our dynamic multibrand multichannel proposition across our core market and our capacity for further growth across an expanding geographical reach.”
The retailer, ranked Top50 in IRUK Top500 research, now has two stores in Thailand and five JD stores in the US, including three that were previously Finish Line stores. It has gained confidence from the early performance of JD in the US and now plans to convert up to 15 more Finish Line stores in the first half of 2019.
It is now predicting that pre-tax profits will be at the upper end of expectations, despite “some labour cost inefficiencies” during the course of its transition to an enlarged and further automated warehouse at its Kingsway site.