The Retail Note - Xmas 2019: making sense of the nonsensical
The challenges of deciphering reality from the murky world of retailer Christmas statements, compounded by an extraordinarily unhelpful and misleading release from the BRC.
8 minutes to read
Stephen Springham, Head of Retail Research:
Lies. Damn Lies. Statistics. Research. The Word of a Property Agent. Retailer Christmas Trading Statements. A broad pecking order of reliability and closeness to the truth.
Joking aside, there is far too much emphasis placed on the post Christmas reporting season. As I’ve said on many occasions before, the retail sector does not stand or fall on a single season’s trading, even the imaginatively-titled “Golden Quarter”. Retailers that trade well over Christmas are those that are trading well anyway and don’t need any artificial boost. Conversely, those at the other end of the performance spectrum are struggling in the normal course of events. No under-performing retailer miraculously pulls it out of the bag over Christmas, few out-performers abruptly lose their way.
Equally, Christmas is often depicted as being a “make or break” time for retailers, mainly on the basis that a handful of operators inevitably go bust before or in the immediate aftermath of the festive period. If Christmas is indeed “make or break” for a retailer, then its longevity is limited anyway and Christmas merely precipitates an inevitable demise.
Retailer Xmas trading statements are also notoriously unreliable, yet for some reason still seem to be treated as gospel by the media. Unlike full year and interim accounts, the statements are unaudited and are basically a vehicle for retailers to put out any message they wish. Retailers have free rein to select whatever reporting period they want and this can massively distort which numbers are released. Also, the statements are pre-occupied with sales and contain precious little information on profits – and margin pressure is as much an issue in the current retail market as how much consumers are spending (whatever the BRC may say).
The media game of putting retailers into “Winners” and “Losers” enclosures is likewise over-simplistic. The media generally read far too much into headline numbers and take at face value something that needs a large pinch of salt.
These strong caveats notwithstanding, The Good, The Bad, The Mixed, The Ambiguous and The Misleading from what we have learnt so far:
The Misleading
Any value in the British Retail Consortium’s Christmas release sadly evaporated in their sensationalistic headline that 2019 “was the worst year on record for retail”. It is a crying shame that a body that is supposed to represent and promote the retail industry seems more preoccupied in pandering to the media.
Beneath all the negativity, total retail sales in December actually grew by +1.9%. Like-for-like sales were ahead by +1.7%. But as the BRC stressed (in no uncertain terms), these figures included Black Friday on account of the fact that it fell late this year (29 Nov). Making adjustment for this, the BRC concluded that for the combined November/December period, like-for-like sales were actually down -1.2%.
There are more questions than answers in the BRC numbers. For one thing, in a sector that is seeing its overall footprint contract (over 16,000 stores closed in 2019, according the Centre for Retail Research), why is total sales growth higher than like-for-like (which implies space gain)? According to the BRC, total sales for 2019 decreased by -0.1%, the first ever year of decline since the BRC launched its index in 1995.
The official ONS figures (which represent 95%+ of the retail industry as opposed to the BRC’s purported 50%+) are likely to tell a very different story when they are released on Thursday 17 January. We may even see year-on-year growth of 5%+ in December (including Black Friday) and growth of +4% for 2019 as a whole.
By giving the media headline-writers an easy ride, the BRC is not furthering its causes, in my opinion. Yes, the retail sector is facing unprecedented challenges and there is no merit in denying this. But pleading poverty through headline-grabbing hyperbole does not take the debate forward.
The Good
Next underlined its status as one of the best-run retailers in the country, reporting an increase in full price sales of +5.3% for the quarter ended 28 Dec. On the basis of this performance, it also upgraded its full-year profit guidance by £2m to £272m (+0.6%).
Decent figures from Tesco, a fifth consecutive year of positive Christmas growth. For the six weeks to 4 Jan, total sales increased +0.2%, while like-for-likes were up +0.4%. These levels of growth were also sustained over the longer preceding period (13 weeks to 23 Nov). CEO Dave Lewis pointed to a “subdued” Christmas grocery market on the back of widespread promotional activity and heavy investments in price, rather than a fragile consumer backdrop.
Although scant on detail, JD reported an uplift in like-for-like sales over the festive period and indicated that full-year profits would be at “the upper end” of market expectations, which range from £403m - £433m.
Selfridges continues to defy weakness in the department store sector generally, posting a +5% increase in sales for 24 days before Christmas. Menswear and beauty saw sales increase by +11% and +10% respectively.
Mountain Warehouse took pride in “defying the doom-mongers” with a record performance. The business registered a +16.2% increase in sales to £95.8m in the 13 weeks to 29 Dec and plans to open a further 50 new stores this year.
Ongoing strong performance at value operators Dunelm and B&M Bargains. Dunelm saw total sales increase by +6.2% in the 13 weeks to 28 Dec, with like-for-like sales ahead by +5%. A non-participant in Black Friday, the business also reported margin growth and flagged profit improvement. Over exactly the same trading period, B&M saw an uplift in group revenue of +9.3% to £1.2bn. This was largely driven by new store openings (of which there were 12 in the period), with like-for-likes up by just +0.3%.
The Bad
The biggest disappointment was the John Lewis Partnership. For the seven weeks to 4 Jan, the Partnership posted a -1.8% decline in gross sales to £2,167m. Waitrose’s figures (-1.3% overall, +0.4% like-for-like) were underwhelming rather than bad. John Lewis & Partners department stores fared less well (-2.3% overall, -2.0% like-for-like, with online sales up just +1.4%). The transparency of reporting weekly sales figures shows just how disruptive Black Friday is (e.g. Black Friday week +29.7%, the preceding week -28.4%) and the fact that the Partnership also issued a profits warning is surely no co-incidence.
Morrisons spoke of “an usually challenging” Christmas, as it reported a decline of -1.7% in like-for-like sales (exc fuel) for the 22 weeks to 5 Jan. Total sales for the period were down -1.8%. A strong performer over recent times, the business would appear to be squeezed between the ongoing rise of the discounters on the one hand and something of a resurgence at both Tesco and Sainsburys on the other.
Former darling of the fashion sector Superdry issued another post-Christmas profit warning in the wake of weak sales. Group revenue slumped by -15.8% in the 10 weeks to 4 Jan, with store sales down -18.5% and online sales down -9.3%.
More surprising was the profit warning from Joules. Retail sales over the seven weeks to 5 Jan were down -4.5%” and as a result, it anticipated that underlying PBT for the year would be “significantly below market expectations” of £16.7m. The sales shortfall was due to stock availability issues on the online side of the business.
Card Factory also lowered its full-year outlook after a “softer than anticipated Christmas trading period”. Although total revenue for the 11 months to 31 Dec grew by +3.6%, like-for-likes slipped -0.6%.
The Mixed
Certain parallels between Marks & Spencer and Sainsbury’s in that food significantly out-performed non-food.
Group sales at Sainsbury’s declined -0.7% (also -0.7% like-for-like) for the 15 weeks to 4 Jan. However, beneath these slightly negative headline numbers, grocery sales were up by a highly creditable +0.4%. In contrast, general merchandise (largely Argos) saw sales decline by -3.9%, despite a strong recovery in clothing sales (+4.4%).
Mixed performance is nothing new for Marks & Spencer, but their Christmas trading statement made for interesting reading nonetheless. For the 13 weeks to 28 Dec, UK revenues were down -0.6%, but up +0.2% on a like-for-like basis. This masked a tremendous performance in food (+1.5% overall, +1.4% like-for-like). Predictably, this was offset by non-food, with clothing and home sales down -3.7% (-1.7% like-for-like). Although negative, there were a couple of crumbs of comfort in the non-food figures: the rate of decline is decelerating and womenswear (the cornerstone of the business) out-performed menswear. But, very disappointingly, online sales grew by just +1.5%.
The Ambiguous
Aldi and Lidl upheld their reputations as purveyors of the most ambiguous festive trading statements The media heralded “record” sales at both, but anything but would have been a biblical disaster for businesses that each opened 50+ new stores over the last year.
Aldi posted a +7.9% increase in total sales for the four weeks to 24 Dec, but gave no indication of like-for-like performance (which would have been more helpful information than the fact that it sold 55 million mince pies and 22 million pigs in blankets). Lidl saw sales grow 11% in the four weeks to 29 Dec, but similarly provided no like-for-like metrics.
What we’ve learnt so far in five bullet points:
- Consumer demand held up fairly well as a collective whole, but patterns were highly erratic
- Black Friday severely disrupted seasonal trading, prompting unhelpful peaks and troughs
- Grocery demand was more constant but food growth was fairly sluggish overall
- There was a consumer flight to value
- Further pressure on industry margins through excessive promotional activity and discounting.