Christmas was OK, but no better than that. Food retailers outperformed non-food retailers and online grew strongly. So far we have had good figures from the leading food retailers, Aldi and Lidl, John Lewis and a handful of smaller clothing retailers. We have had poor figures from Debenhams and bad ones from House of Fraser and M&S. We think that 2018 will be a tough year for retailers.

This analyst comment is a first attempt to make some sense of the patterns of trade over Christmas. We will publish a more detailed in depth report in February, Christmas Shopping Habits – UK, February 2018 , when we have had more trading statements.

First indicators

With most of the Christmas trading statements from the major retailers now out plus some overall retail figures from the BRC, we can come to some preliminary conclusions.

  • Christmas turns out to be very much as we expected. Sales have grown, but not very much.

  • Food retailers have performed the best and the results from the market leaders are remarkably similar.

  • Non-food retailers had a more difficult time, in part, we think, because of sales brought forward by Black Friday.

  • In clothing M&S was disappointing and Next was little better.

  • The outperformers in clothing were niche retailers from boohoo to Ted Baker.

A more detailed analysis of the ONS Retail Sales is shown in the next section.

The BRC numbers

The BRC reported that total sales up 1.4% in December (year on year) and like-for-likes up 0.6%. Food retailers outperformed non-food retailers. Over the last quarter of 2017 food retailers rose 4.2% and non-food retailers were down 1.4%. That is in spite of the fact that the final quarter includes a stronger Black Friday than last year.

Food retailers

It was a good Christmas for the food retailers. Rising inflation has helped, but it looks as if the majors increased sales volumes as well.

Aldi and Lidl are well out in front in total sales terms. They do not publish like-for-like figures but even allowing for their rapid opening programmes it is reasonable to assume that they have won in like-for-like terms as well.

Aldi highlighted the success of its premium ranges, but that was a common theme through all the results.

Retailers have a way of reporting different figures which makes comparisons difficult. It is worth remembering that both Tesco and Morrisons are coming from a relatively low base and a period of underperformance. Sainsbury's is putting growth on top of an extended period of outperformance. So we do not think there are any big messages in the small differences between these figures.

The M&S figures were particularly disappointing given the success of premium lines over Christmas.

Figure 1: Leading food retailers, Christmas 2017
Retailer Period covered (number of weeks, Q3 etc) Dates covered Total sales growth % LfL sales growth %
Lidl 16
Aldi December 1-31 Dec 15
Co-op 2 weeks 18 Dec-1 Jan 6.2
Morrisons 10 weeks 29 Oct-7 Jan 2.6 2.8
Tesco 19 weeks 26 Aug-6 Jan 2.6 2.3
Waitrose 6 weeks 18 Nov-30 Dec 1.4 1.5
Majestic Retail 10 weeks 23 Oct-1 Jan 1.2 1.3
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Clothing retailers – A very mixed performance

Clothing retailers either did well or badly, there is little in between. It is possible that Next performed inline with the sector, but we need the ONS numbers to confirm that. We think that there's a strong underlying message here. Consumers are becoming much more demanding and the biggest impact of online is that it makes it so much easier for customers to compare retailers before buying. After all in Mintel's report on Fashion Online, June 2017, we found that 37% of internet users who have bought fashion online had used their smartphone while shopping for fashion in-store. So retailers whose offer falls short are going to be punished more quickly, but it is also likely that any improvement in the ranges will be rewarded more quickly too.

The figures from Fat Face, Joules and Superdry are superb, so this is not just an online vs stores issue. It's true that boohoo is at the top of the table but it is coming from a smaller base and has had the help of a major acquisition. Even Matalan had a good Christmas, though sales for the whole of the final quarter were down.

M&S is not the worst in the list, but it is the most disappointing. M&S is taking a strong stance on discounting and that is all to the good. But the core problem of the womenswear has yet to be sorted out. Mintel's Clothing Retailing - UK, October 2017 report shows how M&S' market share is falling further as its customer base continues to age - it now peaks among over-65s. Our consumer research highlights how it is losing its female customers aged 45-64 despite attempts to reposition the womenswear business. Getting its womenswear offering right is key and it needs to rapidly make some drastic changes including finding the balance between stylish stand out pieces and core basics that combine quality and value for money in order to recapture its core demographic. It also needs to adapt its stores faster to respond to changing consumer shopping behaviour. The longer this takes the more it risks losing trust in the M&S brand.

Figure 2: Leading clothing retailers, Christmas 2017
Retailer Period covered (number of weeks, Q3 etc) Dates covered Total sales growth % LfL sales growth %
boohoo 16 weeks 10 Sep-31 Dec 100
Quiz 7 weeks 19 Nov-6 Jan 31.9
Joules 7 weeks 19 Nov-7 Jan 19.2
Superdry 10 weeks 28 Oct-6 Jan 12.6 4.7
Fatface 5 weeks 2 Dec-6 Jan 12 8
Ted Baker 8 weeks 12 Nov-6 Jan 9
Jigsaw 5 weeks 26 Nov-31 Dec 7
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Department stores – The good, the bad and the ugly

The John Lewis figures are superb, Debenhams is disappointing and House of Fraser is reported to have approached some landlords asking for rent reductions. John Lewis is putting growth on a ten year record of real growth. Debenhams has been talking about trying to restore its pricing credibility by cutting back on discounting, but it reversed that policy over Christmas. Some commentators have focussed on Debenhams emphasis on gift merchandise. But we feel that its stores need investment and its designer brands need improving.

House of Fraser was performing well up until it was acquired by Sanpower. But since then its sales performance has steadily worsened. A transformation programme has been started, but there is no evidence yet for how successful that will be. The news that it has approached some landlords to try to negotiate lower rents is a worrying sign.

Figure 3: Leading department stores, Christmas 2017
Retailer Period covered Dates covered Total sales growth % Like-for-like sales growth %
John Lewis 6 weeks 18 Nov-30 Dec 3.6 3.1
Debenhams 17 weeks 3 Sep-30 Dec -0.8 -1.3
House of Fraser 6 weeks 11 Nov-23 Dec -2.9

Some sparkling other performances

Mintel is due to publish its Christmas shopping habits report in February and we will give a much more comprehensive run down of what went on then. But it is worth mentioning that we have had very strong performances from Mountain Warehouse (+33% lfl), Games Workshop (+55%) and AO (+11%). Shop Direct reported that sales at Very were up 16%.

But it was not all good. Maplin reported sales down 3% and it is in discussions with landlords to reduce rents. That is always a bad sign and is only one step short of a CVA. Another company in deep trouble is Steinhoff, though we have yet to hear just what has gone wrong. The UK subsidiaries (Poundland, Harveys and Benson beds) have established funding to keep them independent of the group if necessary. But another of Christo Wiese's investments, New Look, is in trouble. Its Christmas sales were encouraging, but its debt has been downgraded to junk status and profits for the year just ended are expected to be well below the finance charges on the debt used to buy the business.

Online still growing strongly

Online retailers grew strongly over Christmas, though we haven't yet heard from Amazon or eBay. We expect the ONS data to show that online took over 16% of all retail sales in 2017, but that the store based retailer's share of that was only just under half.

We will look at online in much more detail in the Christmas shopping habits report in February, but there's no doubt that it will continue to grow. Somewhere there will be a ceiling to growth and it is interesting to note that the first sector to move strongly online was books and that has already seen that ceiling reached and there has been a return to buying from bookshops.

Lessons for 2018

  • We think that consumers were prepared to overlook the underlying economic problems.

  • Their real incomes are falling, the housing market is weakening, interest rates are rising and inflation is rising. That's a toxic combination.

  • Consumers were prepared to overlook these things in 2017 and borrowed to finance spending. But it is hard to see them continuing to do so.

  • We think that 2018 will be tougher for retailers and our initial guess is that Christmas 2018 will be weaker than 2017, certainly in volume terms and possibly in value as well.

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