UK Retail Briefing: Inc Impact of COVID-19 - September 2020
Analyst Comment – The Prospects for Christmas 2020 
 
“Christmas 2020 will be a festive season like no other. The COVID-19 pandemic will shift traditional shopping habits, strain will be placed on logistic networks and for many retailers it will be a make or break period. Despite consumer willingness to enjoy Christmas following the events of 2020 the economic realities will dampen spending and mean value will be crucial. ” 
-Nick Carroll, Associate Retail Director

Our approach 
In this piece we will set out our initial expectations of growth/decline for the festive period and some early key trends we expect to see. The COVID-19 situation is of course extremely fluid and the numbers and trends are based on the current situation (as of 25 September 2020). 

At the time of writing the Government has rolled back some of the easing of COVID-19 restrictions that had been seen across the summer as the number of cases continues to rise. Individuals cannot, in England, meet with more than six people and pubs, restaurants and other leisure venues have a curfew of 10pm. There are also a number of regional tighter lockdowns with currently 22% of the population facing additional restrictions. 

We also currently have research in the field to gauge consumer spending intentions for Christmas, and will release this as a separate piece highlighting key trends in gifting for the coming seasons once that data is back. 

Retail sales so far 
The overall picture in the retail sector in the first eight months of the year, the point to which the latest data runs, is mixed. Overall sales have grown 0.8% in 2020 however this combines significant growth in the grocery sector (+8.7%) and a significant decline among the non-food retailers (-15.5%). 

Lockdown, and the closure of non-essential stores, was a big hit to non-food specialists with sales down 48.1% during the peak of lockdown in April and May. In June there were early signs of demand returning, helped by store openings, but it has been in July and August that pent up demand has begun to be released in a more meaningful way. 

As the chart below shows, this has not been shared equally among retailers. Home-focused categories have been the main benefactor, backing up data from Mintel’s Furniture Retailing: Inc Impact of COVID-19 – UK, July 2020 which found 55% of consumers said that extended periods of being indoors have made them prioritise the home over other things. DIY in particular, one of the few non-food categories in growth for the year to-date, has benefitted, helped by weak comparative 2019 figures, but household electricals, floor coverings and furniture have all seen a significant return to growth from July. 

Computers and telecoms is currently the category which is registering the largest declines, although in part this is due to the closure of standalone Carphone Warehouse stores combined with a weak market. 

Outside of this it is clear that fashion has seen the biggest hit. It is a sector where whilst there is an element of non-discretionary demand, it heavily relies on events and other social activities to drive sales – as highlighted by Mintel’s Clothing Retailing – UK, October 2019 32% of consumers purchased clothing to wear on holiday in 2019 whilst 26% purchased clothing for a specific event/occasion. With such events likely to be constrained for at least the rest of 2020, we expect demand for fashion to be depressed throughout the rest of the year. 

FIGURE 1: First eight month % change, and July-August % change, in retail sales by category, Jan-August 2020
  
Source: ONS/Mintel 

Of course one of the key trends in the retail sector has been accelerated online growth as a result of the pandemic. We consider this issue in far more detail in Mintel’s recently published Online Retailing: Inc. Impact of COVID-19 – UK, August 2020 Report but online sales have grown on average by 54.5% since April. Grocery has been a major driver of this, with the sector running at essentially double the size of 2019 since May, but non-food demand has too seen significant growth and growth that rather than easing has been maintained even when stores reopened. 

We expected online demand to be heightened through 2020 and play a larger role than ever during the final quarter, something we discuss in more detail later in this section. 

FIGURE 2: Online sales: annual % change in online sales, by month and type of retailer, Jan-Aug 2020
  
Source: Office for National Statistics/Mintel 

The significant hit to confidence 
Whilst store closures played a significant part in the hit to non-food demand during, and post, lockdown equally significant was the hit to confidence and the cutting back on non-essential spending seen. 

Data from Mintel’s Financial Confidence Tracker highlights this, with the chart below an index of responses ranging from ‘confident’ to ‘things are really bad’ regarding current financial situation. Following a peak in confidence in February 2020, confidence hit an historical low in the ten years Mintel has been tracking these metrics of confidence. We then saw a gradual recovery from June to August, although confidence remains below the levels seen in 2019. 

FIGURE 3: The Financial Confidence index, Jan 2017-Sep 2020
 
Base: 2,000 internet users aged 16+
 
Source: Lightspeed/Mintel 

Naturally this hit to confidence in finances had a knock on effect on spending patterns. Mintel tracks a range of both confirmed and planned spending activities, as shown below, and confirmed spending activities in the past three months hit a record low in June, so across the period of lockdown. After an initial drop in planned spending activity this metric has stabilised, but remains significantly lower than 2019 levels. 

Further data from Mintel’s COVID-19 tracker highlights this caution among consumers. In mid-April (16-23 April 2020) a peak of 46% of consumers said they were cutting back on non-essential spending and whilst this has eased as the outbreak has progressed in our latest round of weekly research (10-17 September 2020) 37% of consumers said they were still cutting back on non-essential spending. This underlines the trend seen in the retail sales data, some demand is being released but it is targeted and overall there remains caution among consumers. 

FIGURE 4: Financial activity index, Jan 1-Sep 20
 
Base: 2,000 internet users aged 16+
 
Source: Lightspeed/Mintel 

COVID-19 and the recession it has brought on is however one of the most polarising recession periods we have seen to date. Whilst significant numbers have seen incomes reduced, due to either the furlough scheme or indeed simply job losses, there are many that are for now better off due to COVID-19 because they have retained jobs but cut back on outgoings due to working from home. Indeed in May (21-28 May 2020) we found that 31% of consumers said their outgoings had been reduced due to COVID-19. 

The data below further highlights this, with 20% of consumers in September 2020 saying they are currently better off than they were a year ago. Of course this is outweighed by the 28% who say they are worse off, with the majority (51%) saying their income was about the same as in 2019. 

Breaking this down into gross household income brackets further highlights the polarisation in finances. Those from lower income households are more likely to have seen incomes affected by COVID-19, with 36% of those with a household income under £15,000 saying they are worse off than a year ago. Conversely more of those with household incomes of over £50,000 say they are better off than worse off. 

This points to a final quarter and festive period where spending patterns will be highly polarised. Overall, given the uncertainty in the market, value will be crucial but those that have seen incomes improve may be tempted to trade up during the period, whilst conversely those who have been most badly hit will be forced to trade down and significantly rein in spending compared to 2019. 

FIGURE 5: Current financial position compared to one year ago, September 2020 
 
“How does you own financial situation compare to how it was a year or so ago?” 

Base: 2,000 internet users aged 16+
 
Source: Lightspeed/Mintel 

The prospects for the final quarter 
There is a willingness to enjoy the festive period 
The indicators then moving into the final quarter are mixed. Demand in the retail sector has picked up since July, but not in areas associated with gifting. Consumers are still cautious with a fifth currently feeling worse off than a year ago. The recently announced Job Support Scheme, the replacement for the Job Retention Scheme, will to a degree limit the expected uptick in unemployment in the final quarter – but the reality is many consumers will be facing financial uncertainty come Christmas. 

However Christmas and festive spending is also an area which can often be insulated from the wider macro-economic picture. Data from Mintel’s upcoming Supermarkets: Inc Impact of COVID-19 – UK, November 2020 Report shows that 77% believe it is important to have a good Christmas after the events of 2020. Of course this does not necessarily translate into greater spending, but does show a willingness for consumers to enjoy the festive period. Whether this is possible due to restrictions on households mixing, and the impact this will have on sales, is something we consider later in this piece 

Further data from that Report indicates that, as of August, around a fifth of consumers were planning to spend more on Christmas food and drink in 2020 than in 2019. Of course the majority said they weren’t, indicating the conservatism in spending moving into the final quarter, but this does show a willingness from some to spend this coming festive season. 

Notably those were most likely to say yes to this statement were from higher income households, matching the trend above regarding the impact of the outbreak on finances, indicating those more premium operators in the sector who may experience greater levels of spending and/or trading up. 

FIGURE 6: Intention for Christmas food and drink spending, August 2020 
 
“Do the following statements apply to you?” 

Base: 1,822 internet users aged 16+ who are responsible for grocery shopping 
 
Source: Lightspeed/Mintel 

Retailers will need to push consumers into earlier habits
Given the continued uncertainty of the situation regarding COVID-19 and its impact on Christmas celebrations many consumers may be tempted to leave spending and purchasing decisions later than usual. 

However there is also evidence to the contrary. Selfridges and John Lewis opened their Christmas shops earlier than ever this year and the data below from Google Trends indicates that thinking around Christmas has moved up the agenda with searches for ‘Christmas gifts’ currently trending ahead of 2019. 

Of course ‘Christmas creep’ is not a trend unique to 2020, indeed as highlighted by Mintel’s Christmas Gift Buying – UK, February 2020 Report it has been a trend present in the market for a number of years. In 2019 13% of consumers had purchased gifts prior to September and 39% had started their Christmas shopping prior to November. 

FIGURE 7: Google Trends: key word “Christmas Gifts”, August-October 2019/20
  
Source: Google Trends: https://trends.google.com/trends/

However whilst some purchasing has begun to come earlier, the majority (60%) begin their Christmas shopping in November, with the majority spending the most in December itself. 

Black Friday is a major contributor to this. Overall 38% of consumers bought during the event in 2019 with 70% of this group using the event to buy Christmas gifts and 31% delaying purchases until the event. With Black Friday falling late once more, four weeks from Christmas itself, there will be a temptation from consumers to wait until this point – particularly due to the need for value and to conserve budgets. 

However from a retail perspective there is an imperative to ‘flatten’ the usual spike in demand seen around Black Friday. In 2019 21.5% of retail sales came online over November and December. During the peak of lockdown 31.5% of sales came online, and we saw the disruption to delivery times and stock levels this had. A similar level of sales penetration is expected this November and December and this will naturally cause significant strain on retailers’ logistic networks. 

Amazon’s shift of Prime Day to mid-October is a clear example of a retailer looking to flatten this peak. Prime Day is a well engaged with event, 48% of the 31% of consumers who are Prime Members purchased items during Prime Day 2019 and given its timing and the need for value the 2020 event, looks to be the biggest yet. This will be the event that kick starts Christmas shopping in a major way in 2020 and it will be down to other retailers to compete at this point or position their own events between then and Black Friday to both ease the demand spike and crucially cut through the noise of what we know will be a heavily promotional final quarter. 

FIGURE 8: When gift buyers began their shopping, December 2019 
 
“What was the earliest month you purchased gifts in 2019?” 

“And in which month would you say you spent the most on Christmas gifts in 2019?” 

Base: 1,708 internet users aged 16+ who purchased Christmas gifts in 2019 
 
* separate base of1,682 internet users aged 16+ who purchased Christmas gifts in 2019 and can identify when they purchased gifts

Source: Lightspeed/Mintel 

Online will play a greater role than ever, hitting those without an online presence 
With online naturally going to play a bigger role than ever in the final quarter, this does naturally play into the hands of those most proficient in this area. Amazon is the obvious online-only example, but as we highlighted above store-based retailers have competed well online so far in 2020. However it is one thing for a John Lewis to compete with Amazon and another for a local independent. 

There has been much goodwill towards the independent retail sector in recent festive periods, and indeed more broadly toward physical stores as consumers become more aware of the impact of online on the high street. Indeed in 2019 57% of Christmas gift buyers said it was important to shop in-store to support physical retailers. 

However 58% also said it is more convenient to shop online for gifts than in-store and crucially, given the need for value this Christmas, 39% believe it is more expensive to shop in-store than online for Christmas gifts. 

For the independent sector this last point proves a particular challenge, however the goodwill towards the small retail sector and the natural support for British businesses during a recession could outweigh for some a higher value. However what is crucial is that such stores make it as safe and easy to purchase from them as possible – and online has to be a part of this service offering. 

There are a number of local and independent focused online selling platforms that have either sprung up or thrived as a result of the pandemic, such as Click It Local, and these offer an easier way for business without an online operation to move into this space. With Christmas markets too likely to see significant disruption such platforms, along with social media, provide start-ups and producers with a key way to move into the direct to consumer market. 

FIGURE 9: Click it Local, September 2020
  
Source: www.clickitlocal.co.uk/

The (initial) forecast for Christmas 
Taking all of the factors highlighted into consideration, below we put forward our first estimates for demand in the final quarter. Our numbers are based on the ONS retail sales data, using the non-seasonally adjusted series. Due to in 2019 Black Friday falling into the December figures, and the potential for this to distort the growth rates in November and December 2020 depending on the ONS’ reporting periods, we have combined both months into a single forecast. 

Due to the significant impact that COVID-19 restrictions could have on Christmas spending we have split our forecasts into three. Our ‘current’ or central forecast is based on current restrictions maintaining into and throughout the Christmas period – with the key impact of this being the size of Christmas gatherings being limited. 

The two additional forecasts taking into a ‘best’ and ‘worst’ case scenario. The best case, for the retail sector, is that the majority of COVID-19 restrictions are removed and there is no limit on numbers of family members gathering. In the worst case example the UK is in full lockdown and households are unable to mix. 

Across all three scenarios there are commonalties. We expect the grocery sector to outperform all others during the final quarter – in part due to the continued shift from out-of-home food and drink to in-home and due to, irrespective of the scenario, a priority over festive foods than festive gifts. If socialising restrictions are in place, as we have built in for our current and worst case scenarios, then some growth will naturally be limited. 

We also expect significant demand to shift into both October and November, producing stronger growth in these months and impacting the prospects for December. In part this will be retailer led, Prime Day will shift demand as will a natural focus from retailers to ease pinch points in demand spikes. However we would also expect December footfall to be significantly impacted, due to consumers looking to avoid crowded areas ahead of any potential family meetings, and due to consumer concerns around not receiving online orders ahead of time. 

As we noted at the start of this piece, these numbers will be revised as new data becomes available and any major changes are made in the Governmental COVID-19 advice. 

FIGURE 10: Estimated annual % change in retail sales in November and December 2020
 
	Best  	Current (central)  	Worst  	
	%  	%  	%  	
Food	4.6	3.9	3.0	
Non-food 	1.6	-1.6	-18.2	
Non-store 	27.4	25.4	13.7	
All retail (ex-fuel) 	6.4 	4.3 	-5.5 	

Source: Mintel