Everyday is Black Friday
Black Friday and what we know about festive trading to date, contrasting interim figures from Joules and Quiz and a profit upgrade from Dunelm.
6 minutes to read
• Ahead of its full interim results on 21 Jan, Joules has posted an encouraging pre-close update for the six months to Nov. Despite a “challenging trading environment” the lifestyle fashion retailer posted a +1.3% increase in year-on-year revenue, with retail sales up +3.1%. The group’s international division also grew and now accounts for 17% of the group’s revenues.
• More sobering figures from Quiz. The fast fashion operator swung to a loss of £6.8m in the six months to 30 Sep 2019, compared to a profit of £3.8m for the same period in 2018. Group revenue fell by 5% to £63.3m, down from £66.7m the previous year. While UK stores and concessions sales fell by -11% (not helped by its exposure to Debenhams), the retailer managed to grow international sales (+3%) and online revenue (+7%). Quiz opened two new stores and nine concessions during the period.
• A rare but welcome thing in retail these days – a profit upgrade. Dunelm has said it expects full-year profits to come in “higher than previous expectations” after a period of “strong sales growth”. The value homewares chain said its gross margins have been “stronger than expected as a result of sourcing gains and better sell-through” in its financial year to date. Analyst consensus forecasts pointed to a pre-tax profit of £131.9m and EBIT of £133.3m for the 2019/20 financial year. A full post Christmas trading statement will be made on 9 Jan
Stephen Springham, Head of Retail Research:
Well, that’s Black Friday done and dusted for another year. Except that in many quarters it isn’t. A number of the telecoms operators are still running Black Friday ‘deals’ (do those guys ever stop doing ‘deals’?), while a number of retailers still have Black Friday posters and promos in their stores (which begs the question, are they still running them or are they just too lazy to take them down?).
But these are just the superficial lingerings, the real question marks lie beneath the surface. The day itself has passed, the marketing noise may have died down, but what has happened to the ‘discounts’ / promotions themselves? Many of these are still in place and this is where Black Friday sets a perilous precedent – once the floodgates are opened, it’s very difficult to revert to ‘normal’ pricing. In other words, for many, Black Friday sets the pricing tone for the whole Christmas period. At a time retailers should be trading prime, many are taking a dangerous, possibly fatal, hit to their gross margins.
Those that have taken the brave move to revert to full pricing post Black Friday face a very different problem. Having dangled the carrot of a discount, how can they then persuade the customer to pay full price? There is a carrot, but no stick. Many of these retailers face the prospect of a drop-off in volumes now that Black Friday is over. An artificial spike in demand preceded and followed by a significant lull in trade.
As I predicted previously, Black Friday brings nothing but confusion to the whole retail sector and the information we have to date fully bears this out. The irony is that the media seem to have declared it some sort of triumph, one nameless paper (which has written off the high street on so many occasions in the past) seeming to suggest that it has provided salvation to all the sector’s ills. In reality, the data reads we have so far are hugely conflicting and frankly need to be taken with a heavy pinch of salt.
A very suspect measure at the best of times, footfall figures have been all over the place. Springboard’s forecast of a -4.5% decline in Black Friday footfall proved somewhat pessimistic, the actual outturn figures actually showing a +3.3% uplift. Shopping centres saw footfall increase +6.5%, with high streets and retail parks up +2.4% and +1.9% respectively.
But, as we know, Black Friday is increasingly an online rather than physical “event”. IMRG gave its “lowest ever Black Friday forecast”, predicting than online sales would grow by just 2-3% between Nov 25 and Dec 2. At time of writing, the actual outturn figures have yet to be released, but IMRG has already conceded that they were “far ahead” of these forecasts.
What of actual spend figures? Barclaycard reported that spending skyrocketed by +16.5% on Black Friday itself, with transactions volumes also up (+7.2%). This momentum also carried over to Cyber Monday, which saw transaction volumes up year-on-year by +6.9%. Claiming to process £1 of every £3 spent in the UK, Barclaycard would seem, on the surface, a very good barometer. The issue is that this spend covers all sectors, not just retail. For all we know, those deal-friendly telecoms operators were having a field day at the expense of our high street heroes. Any credibility is undermined further by some of the narrative – “outstanding” and “a fantastic opportunity for retailers and consumers” smack far too much of taking things at face value rather than seeing the bigger picture.
I predicted in last week’s note that the British Retail Consortium (BRC) would make some adjustment to their November figures and that they duly did. Factoring in the timing of Black Friday / Cyber Monday, the BRC is estimating that total retail sales were up +0.9% in November and +0.4% on a like-for-like basis. Not blinding, but at least positive.
But the actual, non-adjusted figures are far more revealing. Total sales in the November reporting period (i.e. excluding Black Friday) slumped -4.4%, with like-for-likes down a miserable -4.9%. The actual figures may be slightly nebulous (the BRC continually understates the official retail sales figures from the ONS), but the trend is blatant. Further evidence, if we needed it, that Black Friday merely displaces spend, as opposed to generating incremental spend growth. And wreaks havoc on retail industry margins.
As an anecdotal aside, there were a worrying number of ‘Desperados’ in evidence on the high street over the Black Friday week-end – retailers that offer a blanket discount (25% seems to be the going rate) across everything instore / online. Surely commercial suicide for some and I doubt that a number of these will be around this time next year.
Interestingly (but perhaps not surprisingly), some of the ‘Desperados’ offering a blanket 25% discount across everything were retailers that had recently been through a CVA. Rather than take a 2500bps margin hit and wasting further marketing budget on promoting / advertising the fact, maybe these retailers should actually be channelling this money into paying the rent to which they are contractually obliged?
Just a thought.