Every year I’m asked for my predictions for the retail industry in the run-up to Christmas, and this year – with the unseasonably warm weather and yesterday having been the hottest Halloween on record – it’s started early.
So, here are my thoughts on what will happen in the retail sector between now and the end of the year…. I don’t have a crystal ball, but these predictions are based on statistics from the same period in 2013, plus a fair bit of “past experience”.
1. Early discounting is inevitable on winter clothing and footwear ranges
Only yesterday I covered this topic on ITV’s “Good Morning Britain” show… and I am in no doubt that discounts are bound to happen. With Next, M&S and Superdry just a few of the retailers making statements about the impact on their sales and forecast profits as a result of the very mild autumn, it is inevitable that they, and others, will be forced to discount to stimulate demand.
Those retailers with the most extended supply chains will have little opportunity at this late stage to cut back their autumn/winter stock commitments, and will therefore be facing a highly overstocked position at this point in the season. Whilst selling off merchandise at a discount – encouraging shoppers to buy even when they’re not feeling the chill – will harm profits, at least it recovers cash tied up product, which hopefully can then be put to good use through procurement of ranges with higher demand next season.
All the same, with little sign of a cold spell (just cool, wet and windy weather anticipated), it would seem that retailers that were depending on good sales this season are going to be suffering when they deliver their next quarter results.
2. Black Friday on 28th November 2014
In 2013, Black Friday was leveraged by several major brands and online retailers to kick-start the peak Christmas trading period. A tradition from the USA, and the day after Thanksgiving, Black Friday is a one-day spectacular where retailers offer huge discounts, promotions and incentives to make the most of the long weekend that Americans enjoy at that time of year.
The first notable Black Friday in the UK was seen in 2013. With consumers now more aware that this shopping event exists, it is highly likely to be MUCH bigger in 2014, with many, many more retailers leveraging the media hype around the date and using it as an opportunity to shift volumes of stock earlier than usual in the Christmas shopping season.
It’s important to note here that the Christmas shopping season has peaked later and later over the past few years, with a HUGE majority of shoppers leaving everything until the last week, if not the last days, before Christmas (the impact of which we’ll look at in point 4).
3. Cyber Monday on 1st December 2014
Cyber Monday is typically the first Monday after pay day at the end of November, and this year, it falls early. In the USA, it’s the Monday after Thanksgiving. In 2014, it’s 1st December, and for the UK this poses a few questions, including, “Will it really happen on the 1st or will it be a week later on the 8th?”
Traditionally, Cyber Monday was the biggest day of the year for online spending, with one of the reasons for this being that people had, in the main, just been paid. Another reason was that, in the past, overwhelmed distribution networks and poor weather had badly affected retailers’ ability to service the volume of orders at Christmas, so early shopping (to secure both availability and pre-Christmas delivery) was essential.
That’s less the case now, and statistics suggest consumers are very comfortable leaving even their online orders until much later than in previous years. Less than two weeks ago, IMRG revealed that just under HALF of consumers would make their online Christmas orders with less than a week to go. Further piling on the pressure, a huge 32% of online shoppers felt that orders made on 20th December would still arrive on time! (Fingers crossed for them that it doesn’t snow heavily…)
In 2014, online retailers are offering some of the latest cut-off dates for online orders to be delivered by Christmas. Omni-channel retailers do have the advantage over pureplay however, as click-and-collect enables them to service online orders, and fulfil those orders (subject to stock availability), right up until closing time on Christmas Eve.
I’m not sure that we will see the HUGE transaction volumes we have seen in the past this year: demand pulled forward by Black Friday and orders left later by consumers hoping for a bargain could make the hype around Cyber Monday in the UK a thing of the past.
4. End-of-year sales will begin before Christmas
As mentioned in points 2 and 3, consumers are delaying their purchases until much closer to Christmas. In part, the reason for this is that, as this trend began to emerge several years ago, the retailers got “cold feet” and went into panic pre-Christmas discounting to try to grab shoppers. What they’ve achieved is essentially training the shopper to wait them out, in a consumer-retailer game of “chicken” – who will break first?
Consumers know they are in control – the retailers cave in every time… So, we can absolutely expect this pattern to be repeated this year. In fact, I wouldn’t be surprised if retailers have made budgetary provision to fund the now-expected, last-minute pre-Christmas discounts for those shoppers who prefer to play the waiting game.
5. Omni-channel retailers will see the greatest gains
What is the role of online, mobile, and click-and-collect? What about footfall to physical retailers? Who are winners and who are losers?
Statistics from Christmas 2013 show that online shopping took a huge share of Christmas sales, with a considerable volume of that going through mobile. In 2013, online sales grew by 16.5% compared to Christmas 2012, resulting in almost a fifth of all non-food sales being made online. More recent statistics say that over half of online traffic comes from mobile devices and that 36% of online sales are made on mobiles.
It stands to reason, therefore, that those retailers with the best websites – and, importantly, those most engaging on mobile devices – will win. However, physical presence gives retailers the edge in the race to secure share of wallet at Christmas – with multi-channel retailers seeing higher sales growth than their pure-play competitors, perhaps due to the phenomenal growth of the more convenient option of click-and-collect – it stands to reason that those able to offer a truly integrated, omni-channel experience will do well.
Sadly though, the high street loses out: exposure to the elements, cost and availability of parking and lack of convenient opening hours all make the high street the least favoured option for store-visiting shoppers. Footfall data that shows an average decline of 26% over the last five years also shows that this is considerably worse in November and December. Interestingly though, and in spite of free parking, a controlled environment and late night openings, shopping centres don’t fare too well either. It’s the out-of-town retail parks that win the race for in-store sales.
6. This Christmas will be a mixed bag for retailers
So what can we expect to happen this Christmas and beyond?
Following a pattern that has been emerging for the last couple of years, major retailers will go into full-blown sale mode on their websites as early as Christmas Eve, and certainly by Christmas Day. More and more shopping will happen online on Christmas Day, but the usual “hype” around Boxing Day for certain notable retailers will continue exist – who doesn’t like getting up at 3am to join the queue outside Next?!
With consumer confidence still at a low ebb, I would imagine that retailers will have a pretty tough time this Christmas. Those who make the most of the key consumer changes (e.g. mobile commerce, click-and-collect) are likely to fare better than those who don’t.
Merchants selling “comparable” (branded) goods will be in a price war, which simply means margin erosion for all who compete. Merchants selling non-comparable (e.g. own-branded) merchandise will fare better, if they are able to engage the shopper and convince them to purchase there and then (they will need highly desirable products, value-for-money prices and a sense of urgency) – if they can’t, then they face that game of chicken and being forced to discount early.
In the food sector, the pattern of dual-sourcing will continue – shoppers saving cash by visiting discounters, and then treating themselves with the money they saved by shopping at more luxury brands. The big four supermarkets should expect to continue to feel the impact of the Aldi/Lidl and Waitrose/M&S Simply Food effect.
In January, we’ll no doubt be hearing more profits warnings from many of the big names, but those who have delivered either incredible value or an incredible experience will be celebrating.
It’s predicted that we’ll spend more than ever before this Christmas – where we spend it, of course, is down to who gives us what we want!