How was business for ecommerce and multichannel retailers in the peak trading season? We report as the first retailers share their figures.
Next sees sales move further online
Next saw sales shift further online over Christmas. It saw online sales grow by 15.2% in the period from October 28 to December 29, compared to the same time last year, while retail – or store – sales fell by 9.2%. Full price sales across all channels, meanwhile, were 1% up on the same time last year.
That broadly reflects the trend over the full year: in the 12 months to December 29, online sales grew by 14.9% while retail sales fell by 7%. Full price sales were up by 2.6%.
The multichannel fashion business, a Leading retailer in IRUK Top500 research,
says that while it expects overall full-price sales to grow by 3.2% in the current, just-started, financial year, it expects profits to be 0.6% lower than previously expected: representing a £4m reduction from £727m to £723m. Of that, £2.5m of the reduced profit expectation will come as growing online sales come with increased operational costs. Over the coming year it also expects store – retail – sales to be down by 8.5% and online sales to be up by 11%. However, it added: “Any sales forecast made in January comes with a high degree of uncertainty. This year uncertainty around the performance of the UK economy after Brexit makes forecasting particularly difficult. We have not factored into our sales estimates the potential benefits of a smooth transition or the downsides of a disorderly Brexit.”
Gear4Music: strong sales growth ahead of Christmas pushed distribution capacity to the limit
The pureplay retailer of musical instruments and related equipment had a buoyant run-up to Christmas as sales grew fast. However its distribution capacity constrained its potential sales growth, and that’s likely to hit full-year profits as a result.
Group sales reached £47.8m in the four months to December 31, up by 41% compared to the same time last year. UK sales of £25.5m were 36% up on last time, but the fastest growth came in Europe and the rest of the world, where sales of £23.2m were 47% up on last time. Active customer numbers were also up – by 47% to 666,000 at December 31, compared to a year earlier.
The retailer, a Top250 trader in IRUK Top500 research, said that its distribution centre reached maximum capacity between Black Friday and Christmas and that constrained sales growth beyond its expectations. That meant forfeiting extra sales that could have compensated for lower profit margins in the first half of its financial year. As a result, full-year profits are expected to come in slightly lower than expected.
Gear4Music chief executive Andrew Wass said the retailer now aimed to expand its UK distribution capacity ahead of peak trading in 2019.
“Our focus has been on gaining market share in what has been a highly competitive environment, and in support of this target and following a period of planned investment, margins during the period began to return towards historical levels. We are confident of further improvements as we progress through FY20.”
During the coming year, he said, the business would invest in building scale, and improving the customer proposition through investment in logistics, systems, products and websites. “We have a clear strategy of targeted expansion and remain confident of the continued long-term growth opportunity alongside an expectation of a return to increasing profitability.”
Commenting, Zoe Mills of Global Data, said the figures made it clear that Gear4Music’s growth would stagnate unless it invests more heavily in its UK distribution capabilities. However, 41% growth in its sales of both own-brand and third-party brand revenues suggest that Gear4music can build its customer base through a more value-based proposition that targets less experienced musicians. “With product clearly resonating with its customer, it must hasten its investment in logistics to ensure it can meet growing demand.”
Entertainment retailers suffer ‘Christmas from hell’
The Entertainment Retailers’ Association (ERA) has highlighted the challenges that physical retailers face as digital dominates entertainment sales. We report on those figures here in the context of HMV’s administration. The organisation also said that the Christmas trading season was worse than many entertainment retailers can remember.
In the week leading up to December 21, DVD sales were down 31.2% on the same week the previous year, Blu-ray sales were down 33.5% and CD sales were down 29.4%.
ERA CEO Kim Bayley said: “It was truly the Christmas from hell. High Street retailing is clearly suffering and that certainly impacted the entertainment business. It is a testament to the strength of the streaming revolution that despite it all, entertainment enjoyed its sixth consecutive year of growth.”
What discounting peak sales means for January sales
Heavy discounts in the run-up to Christmas means that by the time sale season arrives, many of the discounts are pretty old, according to retail analytics company Edited, which specialises in pricing and promotions. Its data suggests that in the run-up to Christmas ‘up to 50% off’ was the most commonly communicated promotion, although the largest group of discounts (30%) sat at between 30% and 40%, while only 12% were discounted by between 40% and 50%.
In a blog, Edited suggests that amid January discount weariness, retailers are looking to new types of promotions. In the UK, newsletters are mentioning more new products, such as activewear. New product mentions are 82% up this January on the same time last year. There are also offers and discounts that chime with likely New Year resolutions and wardrobe detoxes.
Festive returns set to peak
One in nine UK shoppers is all set to return at least one Christmas gift, with pyjamas the most unwanted present of them all, new analysis suggests.
GlobalData says that the impact of Boxing Day sales is waning due to the growing emphasis on Black Friday and the pre-Christmas discounting, but the day will still be marked for the high levels of returns that stores will process, in the form of unwanted Christmas presents.
Patrick O’Brien, UK retail research director at data and analytics company GlobalData says: “Unwanted pyjamas and other sleepwear are the most returned Christmas presents from UK shoppers, with jumpers and tops in the next two places, according to GlobalData’s latest UK Christmas shopping survey, indicating that clothing retailers will be bearing the brunt of the dash to exchange or get refunds over the next few days. 10.8% of Christmas present recipients make at least one return, with half of those returning more than one gift.
The data suggests that men are slightly more likely than women to return gifts but the big demographic difference is in age group. “The younger you are the more likely you are to return Christmas presents, indicating that as we get older we become more grateful, or become easier to buy for, or are just less inclined to bother returning gifts.” Those aged 18 to 24 are more than five times more likely to return gifts than the over-55s.
The study, carried out in January 2018 when it questioned 2,000 respondents, found startling differences between UK regions, with Londoners almost five times more likely to return gifts than those in the North East, meaning that Boxing Day stores in the capital may be more busy today, but for many, returns disruption will be having a negative effect on retail sales.
But customers may need to wait to take their returns back.
“Some stores will be refusing to process returns instore for the first few days of their sales in order to prioritise customer service on buying customers,” says O’Brien. “River Island won’t accept any returns on Boxing Day and JD Sports won’t take returns until 29th December.”
Main image: Fotolia; graphic courtesy of GlobalData.
