Happy spending

This week we take a look at the Christmas trading results of the major retailers and what they mean for retailing more generally.

Despite the gloomy predictions by many analysts, Christmas turned out a lot better than expected. Retail sales volumes were still down 1.6% compared to December 2019, largely driven by non-food stores with cosmetics, sports, games & toys, watches & jewellery, as well as department stores, all experiencing falls in sales compared to Dec 2019. Some also experienced decreases from the previous month. However, the reported results of many large retailers were more positive.

The cost of living crisis has had an impact. A survey in early December by the ONS found that 60% of adults were looking at reducing the amount they spent for the Christmas season compared to the year before. To cut down on spending, 79% said they would buy fewer presents, 73% said they would buy less expensive presents, 62% would buy less expensive food and drink, and 58% reported they would eat out less. Online sales proportion of total retail sales dropped from Nov 2022, likely due to the Royal Mail strikes, which drove consumers to physical stores.

So why, then did many of the UK's biggest retailers report strong year-on-year sales performance? These trading figures must be taken with a pinch of salt as these numbers are so far unaudited. Additionally, sales are not indicative of a company's profits. What these sales reports do tell us is the strength of the brands themselves. The figures also do not take into account the bulk of online returns from the Christmas period.

We must also consider that the downturn in the economy has not yet hit households as hard as it might in the future. Anecdotal evidence suggests that some families were willing to go into debt to ensure a good Christmas. If they cannot pay off that debt this year, it will have a greater impact on next Christmas.

Grocery
Tesco and Sainsburys saw 7.2% and 7.1% year-on-year growth, however both retailers reported reduced operating profits due to reduced grocery and merchandise volumes and higher operating costs. Value grocery and variety chains saw significant growth in sales: Aldi experienced year-on-year growth of 26%, Lidl saw 24%, Poundland 13% and B&M 12%. This may be indicative of a shift towards value retailers as consumers are looking to save amidst the increased cost of living. It must also be noted, however, that Aldi, Lidl, Poundland, and B&M all opened a number of stores throughout the UK in 2022, so sales increases were to be expected.

Non food
Next reported y-o-y growth of 4.8%, largely attributed to sales in their bricks and mortar stores, which saw a growth of 12.5%, whereas Next's online sales only increased by 0.2%. Despite this, Next cautiously predicts that sales and profits will fall for the next reporting period due to inflation in essential goods, including energy, rising mortgages, and price inflation.

M&S saw y-o-y growth of 7.2%, with 6.3% coming from Food and 8.6% from their Clothing & Home operations. This was likely due to increased investment and development in their omnichannel platform: click & collect orders increased by 20% and c.50% growth in third party brand sales (e.g. Seasalt and Phase Eight), and around five million active app users.

Not everyone was a winner over this reporting period. ASOS reported reduced sales of 8% for the UK from 2021, putting it down to weak consumer sentiment, delivery disruptions and inflated sales in the previous year. Boohoo claimed similar pitfalls and saw a decrease in sales in the UK market of 11%. Electronics retailer, Curry's reported a strong performance through their omnichannel platform and services, yet sales reduced by 5% from 2021.

Uncertainty in the future is catalysed by unpredictable macro-economic factors, so retailers are cautious in their forecasts for the future. While the top line results of many of the big names were very positive, the underlying trends are more concerning and if the UK economy does not improve in the next year the impact of the cost of living crisis will be felt a lot harder next Christmas.

Alexander Foy