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by Andy Mulcahy, Strategy and Insight Director, IMRG
Industry View from
2019 has not bought a lot of good news for retailers. Demand has been low, both on the high street and online and, in consequence of the tough trading experienced over the summer period, things were not looking bright moving into the November and December retail peak.
This is a particularly vital time of year for retail as most people have to buy Christmas presents. Many retailers tend to make around 25 per cent of their annual sales in those two months alone. This is why you see so many retail administrations in Q1 – if you have a bad Christmas, you’ve had a bad year.
So why has shopper demand been so weak in 2019, and could Christmas produce the turnaround industry so desperately needs?
To answer the question about weak demand first, you could argue all of the following issues are potentially exerting some negative influence over retail:
• Shopper confidence– there are a number of reasons why shoppers have proven unresponsive to retailer campaigns, but the primary one is likely to be related to the number of prominent retailers who have gone into administration, closed stores, or reported falling sales. People are reluctant to buy higher-cost items when they have concerns over whether the business will still be around to fulfil their order.
• Stuck in discounting– linked to that point, there has been a general dependence on discounting since summer 2018 to drive sales growth. As so much of it has been going on for so long, and with sales being subdued, we approached the Christmas peak under pressure to go harder and deeper than many retailers would like. This creates contagion, so everyone gets dragged into it.
• Spend on other areas– there have been suggestions that potential customer spend is being diverted into other areas, such as entertainment and leisure. This has not been comprehensively proven one way or the other but remains a possibility.
• Lack of new tech– when new devices gain traction for online retail conversion, they tend to create new contexts for engaging with retail sites, which drives sales growth. Smartphones and tablets both did this. At the moment there is no new device, and while voice assistants have potential, they have not reached a level of retail-use adoption yet.
• The environment– a tough one to quantify perhaps, but the intense media focus on the environmental footprint of retail must be influencing shopper behaviour at least to some extent.
• Brexit– there are a number of potential business impacts caused by the ongoing uncertainty, but tying up investment that might otherwise have been used to improve customer experience would be the important one here.
Christmas trading has, in recent years, become heavily influenced by Black Friday. Now that the official day at least is in the rear-view mirror, the online sales growth was actually surprisingly buoyant. And not just for the day either – we look at the Black Friday peak as covering an eight-day period, running this year from Monday 25 November to 2 December.
Some days performed better than others, but on the whole it was much stronger than the data suggested it would be leading into this period.
While many retailers will obviously be relieved to have made it through Black Friday with positive sales growth secured, it is only a few days in a peak trading period that covers two months. What about demand more generally? If shoppers responded so strongly during that week, what about November as a whole?
And, of course, December. The below chart shows the month-on-month growth between October, November and December for the period 2013-18, which serves to illustrate the impact Black Friday has had on December sales volumes. Where sales volumes used to rise moving between November and December, there is now a clear pattern of decline (in 2018 for example, sales revenue fell by 15 per cent between the two months).
If people have done a lot of purchasing over the Black Friday week, can demand be sustained leading up to Christmas – or have shoppers already spent all their money?
Retailers will be hoping their interest can be piqued again.
Graph provided by IMRG
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