January 10, 2014 / 1:11 PM / 4 years ago

Christmas on the UK high street: late, and heavily discounted

LONDON, Jan 10 (Reuters) - Rampant discounting dominated Christmas retail trade last year - but the clear winners were those who held out against price cutting and had both high-street and online stores to benefit from the last-minute surge in trade.

“December 2013 was all about nerve, margin and multi-channel,” said David McCorquodale, head of retail consultancy at KPMG. “Those who ... provided a seamless service between channels will feel pleased, whilst those who discounted heavily to force sales will count the cost in margin.”

Despite signs the British economy is improving, household incomes remain under pressure because inflation is outstripping pay rises, and retailers who have published trading updates so far are showing mixed Christmas results.

The British Retail Consortium said shoppers spent 1.8 percent more in December than a year earlier, helped by a surge in the four days before Christmas. But overall that number was a drop from annual growth of 2.3 percent in November.

Using a like-for-like measure which adjusts for changes in floor space, sales were 0.4 percent higher on the year compared to a 0.6 percent increase in November.

“While confidence levels were higher than the previous year, this wasn’t always matched by more money in pockets,” said BRC director-general Helen Dickinson.

With two thirds of UK GDP generated by consumer spending, the figures will raise questions about the durability of the economic recovery in 2014 - not least because retailers are already warning consumers are likely to tighten their belts in the early part of 2014 after splashing out at Christmas.

“We expect customers to spend cautiously in the few months following Christmas, in an attempt to rebalance the household finances,” said Justin King, CEO of J Sainsbury.

Simon Wolfson, CEO of Next, Britain’s No. 2 clothing retailer, pointed out that economic growth was likely to result in higher interest rates which, in turn, would probably moderate mortgage-owners’ spending.


So far the winners from the festive period are Next, top department store group John Lewis and its sister company and sixth-largest grocer Waitrose. Heavy discounters Aldi and Lidl also enjoyed a good Christmas, taking share from the “big four” grocers - Tesco , Wal-Mart’s Asda, Sainsbury’s and Morrisons .

High profile casualties were Debenhams, the No. 2 department store, and Mothercare, the baby products group, which both issued profit warnings, as well as Tesco, Morrisons, and Marks & Spencer - the country’s largest clothing retailer - which all had profit forecasts for the full year cut as a result of poor Christmas sales.

The losers all blamed an unprecedented level of promotional activity, fewer customers on the high street and a continuing squeeze on household incomes. Unseasonal weather also hit clothing sales in particular.

The winners’ strategies were to hold firm and offer extensive online shopping facilities: Next has a strict policy of never discounting until its Boxing Day sale and is now on course to make more profit in 2013-14 than M&S. It also profited from shoppers’ growing confidence in ordering online

The BRC said online sales of non-food products grew 19.2 percent in December year-on-year, the highest growth in four years, with one in five non-food products bought online, helped by the surge in use of smartphones and tablets.

Next week will bring another raft of updates from retailers including Burberry, Primark, ASOS, Ocado, Dixons and Home Retail.

Meanwhile, the losers will be licking their wounds and pondering a promotional strategy re-think.

Analysts at UK brokerage N+1 Singer suggest evidence of discount fatigue among customers of Debenhams, among others, may necessitate it going “cold turkey” for a period.

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