We are now well into the Christmas trading reporting season. We have the BRC data to indicate total sector trends and enough data from the major players to get a better sense of what is happening by sector in the UK.

The big themes

Mintel has identified two big themes behind the figures:

1. Macro-economic: demand has held up well
2. Retail specific: retailers who have tried to cut back on discounting have been rewarded with stronger sales growth

Retail sales in December

The BRC data shows retail sales were up 1.7% in December and like-for-like sales were up 1.0%. Food retailers have seen a recovery in sales with the final quarter trading up 1.3%.

Mintel forecast sales growth of 2.5% in December as reported by the ONS (due Jan 20th). The ONS tends to come out ahead of the BRC, so Mintel’s forecast looks as if it is about right. Our expectation was that Christmas would be OK – not outstanding, but not bad either and that has proved to be the case.

After all, the economic outlook for consumers remains positive. Real incomes are rising, the housing market is holding up, interest rates are low and there is deflation in many markets. Consumers should have been feeling well off over the festive season and spending indicates that they did.

Discounting

One important negative for demand in December was always going to be Black Friday – to what extent was it going to take spending power from December? There’s no doubt that Black Friday spending in 2016 was bigger than in 2015, but the pattern of trading is beginning to shift.

A number of major retailers – notably M&S – decided not to take part, as well as others – Next, SuperGroup and Fat Face stand out. This suggests that sales over the Black Friday period were even more heavily biased to electricals and large homewares than in previous years. There is evidence in forthcoming Mintel consumer research (Electrical Goods Retailing UK 2017) that consumers were buying because they expected prices to rise in 2017.

Trust

One of the major themes of the Christmas Shopping Habits UK 2016 report was that the emphasis on cutting prices to stimulate sales was undermining customer trust in retail pricing. When we put the statement, “Promotions available mean that you don’t need to pay full price for gifts”, only 6% of consumers disagreed. As we argued at the time, that is an appalling indictment of retailer strategies. Retailers needed to pull back from discounting and re-establish trust in their pricing.

That is what has been happening and the retailers who have been leading the move have been rewarded with stronger sales growth over Christmas.

Of course, restoring pricing integrity is only part of the story. The new management team at M&S has been doing much more than just stopping discounting. They faced an enormous task, but were able to get enough new merchandise into the stores in time for Christmas. The figures for M&S over Christmas were the best reported for over 6 years and mark the end of a decline which culminated with an over-reliance on discounting to stimulate sales.

Food retailers

There’s a similar story apparent in food retailing. Tesco produced excellent results against a period when it had done a major clubcard promotion. Morrisons has re-established its credibility and repositioned itself in the lower mass market. Aldi and Lidl both had an excellent Christmas, as did M&S and Waitrose. For all of them, price consistency and great value for money are the basis of their attraction.

What lies ahead for Christmas 2017?

The most important trend of Christmas 2016 was that retailers who have striven to restore trust in the business and their pricing have been rewarded with strong sales growth.

There’s no doubt that 2017 is going to be a much tougher year for retailers. Inflation will rise and there is some evidence that it has begun to do so already. The major unknown is how real incomes will behave and the extent to which they will be able to compensate for the rise in inflation. One would normally expect real incomes to lag inflation, so some squeeze is almost inevitable.

Beyond that, there is all the uncertainty that leaving the EU would engender. It seems to us that the retailers who will be best placed in such circumstances will be those that consumers trust most. Value for money is always absolutely key in retailing. That is the basis of the success of Aldi and Lidl. We think that re-establishing trust in value for money underpins the results from Tesco and M&S, among others, this past Christmas.

We’re putting the story together in more detail in the Retail Briefing UK 2017 report due out later this month, and in the Christmas Shopping Habits UK 2017 report which will publish in mid-February. The latter will also contain research to get a better sense of how consumers were behaving and what they are likely to do in the coming year.

Richard Perks is Director of Retail Research at Mintel where he advises clients, writes retail reports and presents webinars. Richard joined Mintel in 1999 and oversees the content and strategy of the retail reports. He regularly provides analysis to the global media on retail issues. Almost all of Richard’s career has been in retail analysis and before joining Mintel, Richard worked in the City, both on the buy side and sell side, and as a journalist.

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