Has Brexit already ruined Christmas for retailers?

The sales figures of 2017 are not promising a merry festive period

The festive season is traditionally a time of celebration for retailers. The three months before Christmas are when many businesses, with their stores bedecked with tinsel and trees, make more than half their sales and profits for the entire year.

Last Christmas was certainly a time of joy and goodwill for UK retail. Despite concerns about the impact of the Brexit referendum vote on consumer confidence and anxiety over the state of the economy, UK sales, according to the British Retail Consortium, rose by 1 per cent in the five weeks to December 31. Barclaycard reported that a 4.8 per cent rise in spend in the fourth quarter was the highest in four years.

Fast forward to 2017 and prospects this time round seem less rosy. Retailers have had a tough 12 months, with rising inflation, increased business rates and Living Wage costs hitting their finances.

There have also been signs of worsening consumer confidence, with GfK’s monthly consumer confidence index noting negative consumer confidence all year.

Research by IHS Markit/Visa predicts that UK retail sales will fall by 0.1 per cent during November and December, with high street stores posting a 2.1 per cent decline, the biggest fall since 2012. However, online sales will hold up well, rising by 3.6 per cent.

“Looking back, consumers were in a sweet spot in 2016. Low inflation and rising wages meant there was a little extra in household budgets to spend on the festive period. This year has seen a reversal of fortunes” – Mark Antipof, Visa

Clothing and household goods will be the worst-hit categories. However, gifts and beauty products are expected to do well. “Looking back, consumers were in a sweet spot in 2016. Low inflation and rising wages meant there was a little extra in household budgets to spend on the festive period,” said Mark Antipof, chief commercial officer at Visa. “This year has seen a reversal of fortunes with inflation outpacing wage growth and the recent interest rate rise leaving shoppers with less money in their pockets.”

PwC predicts that consumers will buy fewer presents this year, with big-ticket items and electronic goods under pressure.

According to Mintel’s Consumer Confidence Tracker, part of the caution stems from a belief among shoppers that their gifts will be more expensive this year, impacted by inflation and the weak pound.

“We forecast lower sales growth this year which shows that consumers are very cautious at present,” said Richard Perks, Director of Retail Research at Mintel. “Spending is under pressure, but there are many exceptional factors – the strong comparative with last year and how much cash gets siphoned off by Black Friday. Online is expected to grow at the fastest rate with half of the sales being through the websites of store based retailers. So, any distinction between online and in-store for them is highly artificial.”

“Spending is under pressure, but there are many exceptional factors – the strong comparative with last year and how much cash gets siphoned off by Black Friday” – Richard Perks, Mintel

So what strategies can retailers use to buck these forecasts and deliver a strong Christmas? Perks says retailers must hold off the temptation to cut prices or hold more promotions to drive demand.

“There’s a general move among retailers at the moment to cut back on discounting, including the food retailers doing much fewer multibuys,” he says. “Retailers that go on sale before Christmas is often a sign of real distress, as it means you have far too much stock – and much more than you could reasonably expect to clear after Christmas. No sensible retailer will plan for more promotions. The name of the game up to December 25 has to be to maximise full-price sales. So much will depend on how optimistic retailers were feeling last Spring, when they were finalising the orders for Christmas – and my instinct would be that they were feeling pretty cautious.”

If not with price, then retailers can make a difference with service. There is a clear drive to enhance the in-store shopping experience of customers to boost footfall. This involves a mixture of methods, such as using in-store technology to help customers choose products or order in-store, more personalisation and hospitality options such as champagne bars.

This article was published in our Business Reporter Online: Dragging retail into the 21st century.
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