Xmas 2019: a “good” Black Friday and bad weather the downside risks
My predictions for Xmas 2019, FY results from TK Maxx and AllSaints, interims from Next.
5 minutes to read
- Predictable media misinterpretation of Next’s Q3 performance. Most reported that sales declined in the three months to 30 Oct, when the business actually posted a 2.0% increase in full price sales (including interest income). The sales split of online (+9.7%) and the high street (-6.3%) is notional to the point of being meaningless. The monthly breakdowns were far more telling – a slow start to the season (+0.2% and +1.0% in August and September respectively) but a marked acceleration in October (+5.0%) – a good indicator that there was no repeat of the weak demand the fashion sector suffered last year in October?
- Ongoing strong performance from TK Maxx. The off-price retailer posted a 6.4% rise in total sales to £3.1 billion for the year to 2 Feb 2019. Like-for-like sales were ahead by 4%, while gross profits increased by 10% to £464m. Over the year, the company opened 21 stores (eight t/a TK Maxx, 13 as Homesense). At the year end, the group’s store portfolio totalled 345 TK Maxx stores and 66 Homesense outlets.
- For the year to 2 Feb, AllSaints saw global revenues grow by 1.2% to £331m. The year marked a return to profit at an operating level, the fashion retailer posting an operating profit of £3.6m compared with a loss of £6.2m the previous year. EBITDA before exceptionals was flat year-on-year at £20.6m, while pre-tax losses narrowed from £32.8m to £26.1m. The business ended the financial period with a 255-strong store estate across 26 countries.
Stephen Springham, Head of Retail Research:
Forget the General Election on 12 December. In fact, forget Brexit altogether. Neither will have a material impact on retail sales over Christmas. The biggest downside risk to spending over the festive period will be the weather, whilst, as ever, Black Friday will also cast a dark shadow over proceedings generally.
Few economists will share my views. Most of their forecasts are religiously wedded to political and macro-economic factors. The widely-held view is that all the ongoing uncertainty will continue to undermine consumer confidence and that shoppers will tighten their belts accordingly. Except consumers are not robots and few will rein in their spending habits simply because we don’t know the final outcome of our withdrawal from the EU.
Last Christmas proved to be a case in point. There was no more certainty a year ago than there is now, but consumers spent regardless. The media didn’t dwell on the fact that Christmas 2018 was fairly decent – Q4 retail sales values were up +3.7% and sales in December were also up by the same figure. Based on this comparable base and the pattern of retail sales in this year to date, I am predicting that retail sales values in Q4 2019 will grow by between +3.0% and +3.5% year-on-year. Retail sales volumes (‘real’ growth, net of inflation) in Q4 are likely to grow by between +2.5% and +3.0%.
The General Election is likely to prove a distraction rather than deterrent to actually consumer spending. The real risk to Christmas trading (and the only real caveat to my forecasts) is inclement weather. Following the trend for many years now, Christmas comes ever later, particularly on the food side. Peak days for retail sales will be Saturday 21st and Monday 23rd, with Sunday 22nd and Christmas Eve not far behind. Heavy snowfall this late in the day would be the doomsday scenario. A White Christmas may please the romantics, but few retailers share the same sentiment.
Black Friday is the other major destabilising factor. Billed as a sales bonanza, it is anything but a positive feature in the festive calendar (more rantings to come on that over the next couple of weeks). The advent of Black Friday has definitely shifted trading patterns over the festive period, with demand spikes in late November failing to counterbalance substantial troughs either side. Despite signs of fatigue amongst both consumers and retailers themselves, Black Friday is here to stay in some shape or form, even if it is little more than an exercise in lip service and general damage limitation.
Perversely, a “good” Black Friday (whatever that means) is actually bad for overall festive trading. The less retailers embrace it, the less it is likely to impact on trading patterns, erode margins and devalue brands. With early evidence suggesting that the fashion market avoided the bloodbath it experienced in October last year, more clothing retailers should be in a position to hold their nerve this year and not jump onto the Black Friday bandwagon.
The timing of Black Friday will throw up a significant data quirk this year. It falls later than previous years (29th November) and will therefore be reflected in December’s reported retail sales figures rather than November’s. For example, the official ONS figures for December are likely to cover the period between 24th November and 29th December – in other words, the whole Black Friday period. So, a seemingly weak November wouldn’t actually be a disaster in itself.
These timing distortions make it harder to forecast December’s retail sales in isolation. But I would predict year-on-year value growth in December in the order of +3.5% to +4.0%, with volumes up between +3.0% and +3.5%. Note that these forecasts are based on the official ONS figures, rather than those of the BRC and CBI – both of which report earlier, will be more negative and will be more widely covered in the media.
A few other Christmas predictions. Footfall will be down (on the basis that it always is these days), a handful of retailers will go pop (because they always do at this time every year, even in the ‘good days’ of yesteryear), the media will be unrelenting in their negative coverage (because they’ve already made up their minds) and the post-Christmas reporting from retailers will paint a very mixed (but not desperately revealing) picture.
But none of this really matters. Of course, retailers want consumers to spend freely at Christmas and to generate the highest sales and profits possible. But a Christmas sales boost cannot provide salvation from deeper structural failings.
As I say every year, retailing is for life, not just for Christmas.