Malory Davies looks at the how the major retailers performed over the festive period and what it means for the sector in the coming year.
It was a merry Christmas for the grocers but early figures suggest that other retailers found the festive period more of a struggle. And the story of what happened highlights the supply chain changes facing retailers in the UK in the year ahead.
Figures from the Office for National Statistics show that consumer spending in December was actually down one per cent on November suggesting that buyers were taking advantage of Black Friday deals for their Christmas shopping.
And although there was an overall increase in spending on 2016, not all retail sectors benefitted. Shoppers spent £1 billion more than last year on groceries in the 12 weeks to 31st December, Kantar Worldpanel figures revealed. That’s a 3.8 per cent increase in value – however much of that was accounted for by rising prices, which were up by 3.7 per cent year on year.
Morrisons exemplifies the strong performance of the grocery sector. Like-for-like sales were up 3.7 per cent over the ten weeks to 7th January, driven by a ten per cent rise in online sales.
In its trading statement, the retailer said that more customers were able to access Morrisons.com through new store pick areas, especially in the north east of England.
Store pick will continue to grow as Morrisons further expands the service into more new areas.
Wholesale also performed strongly helped by supplying some tobacco to partner McColl’s earlier than initially planned.
Morrisons has been trialling supplying all 1,650 McColl’s stores with both Safeway products and national brands and the full roll out will begin this month at the rate of about 25 stores a week.
Chief executive David Potts said: “Our plans to become a broader and stronger business are progressing well, with another period of positive like -for -like sales and the start of the rolling programme to supply McColl’s.”
Tesco also performed strongly with a 3.4 per cent increase in like-for-like sales in food in the 19 weeks to 6th January. However, it said this was offset by on-going drag from general merchandise and lost tobacco sales due to Palmer & Harvey integrations. Overall, like-for-like sales were up 2.3 per cent.
Chief executive Dave Lewis said: “Incorporating Palmer & Harvey volumes and complexity during this peak period was challenging, resulting in lost tobacco sales across December and putting further strain into our distribution network, particularly post-Christmas. While I am pleased to say these challenges have now been resolved, they took the shine off an otherwise outstanding performance for the period as a whole.”
Its online grocery business had a record Christmas with five per cent sales growth.
Following CMA clearance of its merger with Booker, Tesco plans to publish its prospectus for the deal in early February, with completion of the deal in early March.
The growth of the discount sector was also a key trend. Lidl UK saw record sales over the Christmas period, with a 16 per cent increase on the same period in 2016 – and its highest ever footfall during the festive season.
The busiest day of the season, a record trading day in Lidl UK’s history, came on 22 December; the week commencing 18 December 2017 was Lidl UK’s strongest ever trading week.
“Lidl UK has had a fantastic 2017 and this was capped by our strongest Christmas trading period to date,” said chief executive Christian Härtnagel. “Customers came into our stores to buy more of their Christmas items, knowing they could find high quality products at market-leading prices. The commitment of our 20,500 colleagues across the country was key to our success during this busy period and I’m extremely grateful for their contribution. We look forward to bringing the Lidl offering to more communities across the UK, as we continue our rapid expansion plan this year.”
Sainsbury’s of course is no longer just a grocer. It’s takeover of Argos means it is now a major player in the general merchandise market – though grocery was still the star performer.
Argos Fast Track collection was up by 39 per cent in the 15 weeks to 6th of January compared to last year, while delivery rose by 25 per cent, helping it achieve record Black Friday sales.
Parent group J Sainsbury said in a trading statement that the services were particularly popular during Black Friday and the last few days leading up to Christmas. “Customers were able to make same-day Fast Track delivery orders up until 1pm on Christmas Eve and we made our last Christmas Eve delivery at 6.39pm,” it said.
Chief executive Mike Coupe said: “We’re pleased with our performance across the Group this quarter. We had a strong Christmas week, with record sales, over 340,000 online grocery orders and stellar growth in Argos Fast Track delivery and collection. Online accounted for 20 per cent of the group’s sales during the quarter.”
Total retail sales were up 1.2 per cent on last year. Grocery was the star performer with a 2.3 per cent rise though general merchandise was down 1.4 per cent.
The retailer said it was continuing to invest in channels to meet changing shopping habits, with same day groceries online now available from 93 stores.
It expects to achieve £80-85m of EBITDA synergies from the Argos acquisition by March 2018 – ahead of the expected £65m. Overall, Sainsbury’s is on track to save £185m this year, exceeding the three year target of £500m by £40m.
It opened 52 Argos stores in Sainsbury’s supermarkets, bringing the total to 164. 18 of these stores replaced an existing Argos store. It also opening four Mini Habitat stores taking the total number to 15.
And it now has 204 digital collection points in its stores where customers can collect Argos, DPD, eBay and Tu clothing
Sainsbury’s performance highlights the difference between grocery and the general merchandise sectors over the festive period. There is now doubt that some of this is down to higher food prices which has boosted grocery spending at the same time as depressing consumers’ cash available for other shopping.
The British Retail Consortium found that in the three months to December, non-food retail was down 1.9 per cent on the year before on a like-for-like basis. The online penetration rate increased from 23 per in December 2016 to 24.1 per cent in December 2017.
Both Debenhams and Next have reported declines in store sales, though these were partially offset by growth in online sales.
Overall, Debenhams’ like-for-like sales in the 17 weeks to 30th December were down 1.3 per cent on last year. Debenhams said it responded to competitor discounting by managing inventory tightly through tactical promotional activity while flowing stock more efficiently. Full price sales at Next were up 1.5 per cent in the 54 days to 24th December driven by strong online growth, the retailer said in a trading statement. While full price store sales were down 6.1 per cent for the period, online sales were up by 13.6 per cent.
The Christmas figures also highlight the different approaches adopted by some of the retail giants – notably John Lewis and Marks & Spencer.
John Lewis chose to maintain competitive prices, saw sales rise but warned that margins would be hit. In contrast, Marks & Spencer refused to participate in Black Friday discounting, but saw sales in general merchandise fall.
John Lewis bucked the trend in general merchandise and fashion reporting a rise in gross sales of 3.6 per cent (3.1 per cent on a like-of-like basis) for the six weeks to 30th December. It reckons it outperformed the market by 4.5 per cent.
Waitrose gross sales were up 1.4 per cent (1.5 per cent on a like-of-like basis)
However, chairman Sir Charlie Mayfield said pressure on margins had intensified and the group’s decision to maintain competitive prices despite higher costs would negatively affect the full year results.
Black Friday was John Lewis’s most successful sales day in its history and contributed to the biggest ever week of sales, up 7.2 per cent year-on-year. Some 65.5 per cent of John Lewis Click & collect sales collected from Waitrose stores, an increase of 0.9 percentage points on last year.
Marks & Spencer struggled in its clothing and home business with sales down 2.3 per cent in the 13 weeks to 30th December. The retailer did not participate in Black Friday to hold its full price stance despite the competitive market. “However, the impact of an unseasonal October resulted in an overall revenue decline. As a result, we carried more stock into the December sale,” it said in its trading statement. “International revenue was down, reflecting the completion of the planned closure of owned stores in loss-making markets.”
M&S food sales were up 3.6 per cent, though like-for-like sales were down 0.4 per cent. Sales through M&S.com were up three per cent. After Christmas M&S set out plans for the creation of a new Technology Operating Model, which will drive significant efficiencies in how M&S exploits new technology, including the adoption of industry agile methods, effective from 1st March 2018.
But in the general merchandise sector as well, there is evidence that discounters are gaining ground. B&M reported sales up 22.9 per cent to £969.8 million for the 13 weeks to 23 December. In August B&M bought Heron Food Group, which it is developing as a discount convenience grocery brand.
Chief executive Simon Arora said: “B&M continues to go from strength to strength. Despite the demanding comparatives from the very strong Christmas in 2016, our buying, supply chain and retail teams achieved another outstanding performance this year by doing what we do best, which is delivering great value for customers week-in, week-out.”
None of the retailers are expecting a significant uplift in demand over the coming year, and it is clear that for many, if not all, a priority focus will be on controlling inventory levels ever more effectively to deal with the challenges ahead.
Online has been the strongest area for many – but the growth in online is hardly news. However, figures from the Institute of Customer Service suggest that 20 million shoppers experienced delays with deliveries during the Christmas period.
And the ICS calculates that this translates into a potential loss of £3.9 billion for UK retailers as customers are less likely to shop with retailers that fail to deliver on time. Of course, the peak sales period is followed by a peak in returns and this year more than £2.5 billion worth of online orders are set to be returned in the month to the middle of January, according to LCP Consulting.
What is apparent from all this is that those retailers that have been slowest to align their supply chains to the shift to online sales are finding life toughest and will need to move faster to keep up. Expect to see the pace of change pick up over the coming year.
This article first appeared in Logistics Manager, February 2018