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PEAK 2017 The Christmas discounting effect

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Discounting ahead of Christmas meant retail prices fell by 0.6% in December, compared to the same time last year, according to figures out from the British Retail Consortium (BRC) today.

The fall in shop prices was faster than that seen in December 2016, when they fell by 0.1%, according to the BRC-Nielsen Shop Price Index. Non-food prices fell faster than they had since the 2017 January sales, with prices cut by 2.1% during the month. That contrasts with a 1.1% fall in November, when the majority of Black Friday-related discounts were on offer.

Food prices rose, however, with inflation increasing to 1.8% in December. That’s up from 1.5% in November, with fresh food prices up by 2% and ambient food up by 1.7%.

BRC chief executive Helen Dickinson said: “This is good news for shoppers. Retailers offered lower prices at the beginning of December than last year on many of their non-food ranges, providing welcome options for Christmas shoppers on a stretched budget. These discounts allowed consumers some much needed breathing room during the festive period at a time when the cost of their food shop is on the rise.”

She added: “While retailers will do their best to absorb cost increases for their customers, the challenges to the industry remain stark with more inflationary pressures in the pipeline.”

Mike Watkins, head of retailer and business insight at Nielsen, said: “With consumer confidence wavering and unpredictable levels of demand, many non-food retailers have been keeping prices low to stimulate spending, which will undoubtedly have come at a cost to margins.”

IRUK Leading retailer Debenhams said it had delivered a short-term boost to Christmas sales through discounting, although that had an effect on profit margins. Next , which is focusing on full-price sales, reduced the amount of stock it discounted by 6% across both its Black Friday and winter clearance events. Next saw overall full-price sales grow by 1.5%, although profits fell.

Commenting, Richard Lim, chief executive of Retail Economics, said: “It appears that Black Friday was the starting gun for a frenzy of promotional activity that ran right up to Christmas for many non-food retailers. With personal finances under pressure, the competition for squeezed Christmas budgets has been fought fiercely. Against a backdrop of rising sourcing and operating costs, profit margins are likely to be under intense pressure. The focus for many retail boardrooms will be just how much damage all this discounting has inflicted on gross margins.”

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