A very happy Christmas for the high street?
This week’s Retail Note provides assessment of retail market performance over the festive period in the light of very strong retail sales figures from the British Retail Consortium and a slew of positive trading statements from a host of major retailers.
9 minutes to read
Key Messages
- Strong Christmas for most retailers
- BRC: total retail sales +2.1% y-o-y in Dec
- Total retail sales +4.6% vs Dec 2019
- Like-for-like sales +0.6% y-o-y
- Non-food online sales down -13.9% y-o-y
- For 2021FY, total retail sales +9.9% vs 2020
- 2021FY: food +3.1%, non-food +15.6%
- 2021FY: non-food in-store sales +38.4%
- Strong performance from all grocery retailers reporting to date
- Fashion operators also performed well
- Demand much softer in electricals
- Positive general trend towards full price sales
- Less promotional activity and discounting.
Happy Christmas
Not a belated greeting on my part, but a headline assessment of the performance of the retail market over the festive season, based on the growing flow of evidence (albeit heavily caveated as per last week’s Retail Note).
Christmas 2021 in a nutshell: consumer demand extremely strong, with scant regard for supposed economic headwinds. Media-hyped destabilising horror stories around supply chain problems largely surmountable issues that didn’t cause much disruption. Nor was hyper-inflation a major factor. Food achieved low growth upon very high growth the year before (helped by reduced hospitality demand), non-food generally enjoyed bumper growth against a very soft comp in 2020. Higher volumes of full-price sales, meaning less promotional and discounting activity (and Black Friday having less of an influence). Store-based sales rebounded considerably, online receded equally rapidly. Christmas 2021 was better even than Christmas 2019, but one month doesn’t compensate for all the lost trade in between.
Overall retail sales from the BRC
True to form: strong figures from the BRC, but extremely cautious narrative. Total retail sales in December grew +2.1% year-on-year, on top of growth +1.8% in December 2020. On a two-year basis, total retail sales grew +4.6% (Yo2Y) during December compared with the same month in 2019. Whilst I don’t want to pour cold water on a very positive metric, those of us with a long memory recall that the BRC release for December 2019 was extremely suspect and in sharp contraction to the official ONS numbers (declaring 2019 “the worst year on record” now seems highly ironic with the benefit of two year’s of Covid-19 hindsight!).
On a like-for-like basis, retail sales increased +0.6% year-on-year in December, much lower than the +4.8% achieved in December 2020 (a function of a sharp reverse in online spending). Overall online sales slumped by more than -8% y-o-y in December (with non-food online sales down -13.9%), making the BRC’s assertion that “many people chose to shop online rather than travel to nearby high streets and shopping centres” all the more baffling. At best, a lazy, preconceived assumption that is not backed up by their own data. If anything, December saw a major resurgence in in-store spend, even if footfall figures do not back this up.
For Q4 as a whole (the three months to December), food sales increased +0.4% overall and +0.1% on a like-for-like basis. For the single month of December, according to the BRC food was “in growth year-on-year.” A bit sketchy on detail to say the least, but given the tough comp of the previous year, any growth whatsoever is good growth.
In Q4, non-food retail sales grew +4.8% overall (+1.4% on a like-for-like basis), unsurprisingly well below the 12-month total average growth of +15.6%, which included a number of post-lockdown artificial peaks. Over the three months, in-store sales of non-food increased +36.0% overall and +26.8% on a like-for-like basis.
"December saw a major resurgence in in-store spend."
For 2021 as a whole, total retail sales increased +9.9% compared with 2020 (even higher than our own projection of +5%, which many questioned). This growth was split between food (+3.1%) and non-food (+15.6%). In-store sales of non-food increased +38.4% y-o-y. And on a two-year basis, total retail sales grew +6.6% (Yo2Y) for 2021 compared with 2019.
The notion of “being back to pre-pandemic levels” infers that everything has gone back to normal and all the damage inflicted by the pandemic has been healed. Clearly this isn’t the case and it will take many months of over-performance before trading black holes can be fully recovered. But one message is very clear from this – the UK consumer is generally in a good place and given the chance (i.e. when the high street is not subject to lockdown) will spend freely.
Food retailers – surely they didn’t all “outperform the market” as they maintain?
Re-iterating the caveats made previously regarding the veracity of retailer Christmas trading statements…
The discounters predictably both declared Christmas a triumph. Aldi hailed its “best Christmas ever”, which is actually a pretty hollow declaration given that it now has more stores than it ever had before and anything but a record performance would have been a disaster. Aldi’s sales in December were up+0.4% compared to the same period in the previous year. Apparently, during the run up to Christmas, it sold more than 43 million mince pies, 21 million pigs-in-blankets and 118 million brussel sprouts. But it stopped short of giving more useful steers such as a like-for-like sales figure.
Compatriot Lidl meanwhile laid claim to being “the fastest-growing bricks-and-mortar retailer” (B&M or Home Bargains could possibly dispute this). Sales for the four weeks to 26th December rose +2.6% year-on-year and were ahead +21% on a two year basis. Lidl’s growth ostensibly eclipsed that of Aldi (+2.6% vs +0.4%), but the latter did not specify the trading period to which its figure referred. See previous caveats…
The fact that the discounters reported early led many commentators to jump to two key conclusions: the mainstream grocers must have had a terrible time over Christmas and economic concerns prompted a massive flight to value. As the week progressed, statements from Tesco, Sainsbury’s and M&S firmly dispelled both of these notions.
In a trading update that delighted the City (a rare event), Marks & Spencer reported that group sales were up +18.6% over Christmas (13 weeks to 1st January 2022) and increased its full-year profit guidance. Within this, food sales rose +10% year-on-year and +12.4% on a two-year basis during the period. Larger basket sizes recorded in the first half of the retailer’s financial year continued through the festive period, prompting M&S to proclaim that “was the fastest-growing major store-based food retailer in the period” and recorded its “highest-ever Christmas sales” in December. Clearly, just as many consumers were prepared to trade up over Christmas as they were to trade down.
Which should have left the middle market squeezed. Except it didn’t, if the figures from both Tesco and Sainsbury’s are anything to go by…
"Lidl’s growth ostensibly eclipsed that of Aldi."
Although Tesco’s headline figures were less eye-catching than M&S’ or Lidl’s, given its size, they were equally impressive. Group sales were up +2.6% in the 19 weeks to 8 Jan 2022 and by +3.2% in the shorter six-week Christmas trading period. Tesco’s UK sales edged up +0.3% year-on-year over the six-week Christmas trading period and were up +0.2% over the 19 weeks overall, seeing it achieve its highest market share in four years. On a two-year basis, sales were up +8.7%. Interesting detail on performance by channel during the festive period: convenience was the fastest growing format (+2.6% vs 2020, flat vs 2019), followed by superstores (+1.9% vs 2020, +4.6% vs 2019). Online sales were down -11.3% during the Christmas period, but were still over +50% higher than 2019 levels.
Sainsbury’s also raised full-year profit guidance, reporting +3.1% growth in Yo2Y group sales for the six weeks ended 8 Jan 2022. Within this, grocery significantly out-performed non-food. Grocery sales were up +0.8% against 2020 and +7.7% against pre-pandemic 2019. Again, there was significant evidence of consumers trading up, with premium “Taste the Difference” sales up +13% during the Christmas period. Over the Q3 period, online sales declined by -16.5%.
Modest grocery market growth (against a very tough comp), yet all the major players reporting to date claiming to have out-performed the market and increased market share. Unless the majors yet to report (Asda, Morrison’s, Waitrose, Co op) had a wholly miserable time, something clearly doesn’t add up c.f. previous caveats…
Non-food retailers – too good to be true?
Much positivity on the non-food retailer trading updates too, particularly on the fashion side. The media sadly focused more on Next’s comments regarding inflation than its stellar trading performance. In the eight weeks to 25 Dec, full-price sales were up +20% compared with the same period pre-pandemic – £70m ahead of its previous sales guidance. It now expects full-year sales to be £4.3bn – a +12.8% increase on previous estimates. It also raised full-year profit before tax guidance by £22m to £822m – up 9.8% versus two years ago. The retailer said it had expected its fourth-quarter sales to be weaker than in the third quarter, but it enjoyed “a strong revival” in branded adult formal and occasionwear during the period.
Marks & Spencer also saw a more positive non-food performance than we have seen for a long time. In the 13 weeks to 1 Jan 2022 clothing and home sales grew by +3.2%. That said, the comp base was particularly weak (clothing and home was down -25.1% in 2020 as a whole). That notwithstanding, there were other positives in the figures, not least a +45% increase in full-price sales and -66% reduction in sales of product sold on promotion.
An upgrade to full-year profit guidance at JD Sports. The sports fashion retailer said revenues were up “more than +10%” in the 22 week period to 1 Jan, compared with the same period in 2020, prompting it to raise its profit expectations for the full year to 29 Jan from £810m to £875m. A similar story at value furnishings retailer Dunelm, which now expects profit before tax for the first half of its financial year to be ca. £140m, up from £112m last year on the back of a festive sales rise of +13%, driven by higher full-price sales.
Within non-food, less positive newsflow from the electricals retailers. Currys reduced its profit guidance after suffering a decline in sales during Black Friday and the Christmas trading period. Like-for-like sales in the retailer’s core UK and Ireland business fell -6% year on year and were down -2% compared to 2019 levels during the 10 weeks to 8 Jan 2022. Despite the drop in sales, Currys insisted it made market share gains in a “softer” electricals market that was down -10% year-on-year. Full-year profit before tax is now expected to come in at £155m, having previously forecast £160m at its half-year results in December.
Strong growth at Sainsbury’s deflected attention away from poor figures at sister business Argos. Sales at Argos during Q3 (the 16 weeks to 8 Jan 2022) slumped -16.1%. Although this was against a strong comp the previous year (+8.4%), this still represented a -9.1% decline on a Yo2Y basis. If there were any crumbs of comfort in the numbers it was that the business engaged far less in promotional activity and had been far more reticent in chasing sales around periods such as Black Friday. This appears to be a positively consistent message across much of the retail sector.
A week today (21st January) sees the release of the official ONS retail sales figures for December, Q4 and 2021FY. Which will put everything into far more context. Or maybe not.