Christmas: positive messaging at the coalface
This week’s Retail Note analyses this week’s newsflow from the retail sector on Christmas trading – with major retailers far more upbeat than industry bodies.
9 minutes to read
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Key Messages
- More evidence that Christmas was decent
- Grocery far stronger than non-food, which was very mixed
- BRC says retail sales were up just +1.7% y-o-y in Dec
- Online sales were down -1.0% y-o-y in Dec
- FY 2023 retail sales growth of +3.6%
- FY2023 grocery sales growth +8.1%, but non-food declined -0.1%
- BRC’s figures at odds with both the ONS and retailer trading statements
- Tesco reports +6.9% like-for-like growth and upgrades on profit
- Sainsbury’s reports +7.4% like-for-like growth
- UK’s top 2 retailers both report volume growth and market share gains
- M&S reports UK like-for-like growth of +8.1%
- Exceptional performance in food (+10.5% overall, +9.9% like-for-like)…
- …and in non-food (+4.8% overall and like-for-like)
- Retailers that ignored Black Friday generally outperforming those that partook
- Some concerns around industry margins in non-food
- Official ONS retail sales figures will be released on 19 Jan
It’s been a long time since Tesco, Sainsbury’s, Marks & Spencer and Next all traded strongly at the same time. The adage was that the UK’s two largest grocers and fiercest competitors couldn’t both prosper simultaneously, nor could M&S and Next (history showing the latter adage perhaps ringing true more often than the former). But that is the happy situation we now find ourselves in, as evidenced by all four festive trading statements.
As predicted in last week’s Retail Note, any exuberance at the coalface of retail (the operators themselves) was not matched in the industry body that represents them, the BRC putting out a typically downbeat assessment of the festive period.
BRC – downplaying Christmas
The figures and messaging from the British Retail Consortium (BRC) were totally at odds with that of the major retailers reporting to date. According to the BRC, total UK retail sales in December increased by just +1.7%. This was below the three-month average growth of +2.3% and below the 12-month average of +3.6%. In-store outperformed online, the latter declining by -1.0% year-on-year. True, this measly growth of +1.7% was against a challenging comp in Dec 2022 (+6.9%), but is way lower than the sales growth of any single retailer reporting to date.
The accompanying narrative was predictably gloomy and unedifying: “The festive period failed to make amends for a challenging year of sluggish retail sales growth, as weak consumer confidence continued to hold back spending. The post-Christmas sales were unsuccessful in enticing spend in areas such as furniture and homeware, with households remaining cautious about making larger purchases. Sales saw a slight uptick in the week leading up to Christmas as consumers scrambled to purchase last-minute gifts, particularly online, due to the wet weather. In gifting, beauty products were the standout performer, and toys and gaming also sold well.”
The BRC figures continually undershoot the official figures from the ONS. According to the BRC, for 2023 as a whole, total UK retail sales increased +3.6%, with food sales growing +8.1% and non-food sales declining -0.1%. Compare these with projected FY outturn figures from the ONS – total retail sales +5% to +6%, food sales +9% to +10%, non-food +2% to +3%. Very different annual figures, so it is fair to assume the ONS December figures in isolation will be substantially better than the BRC ones (+5% to +6% NSA vs +1.7%).
The only real takeaways from the BRC release are confirmation that grocery had a bumper Christmas (and saw a welcome return to volume growth amidst falling inflation), there was a last-minute surge in consumer demand the week before Christmas, health & beauty was the standout product category in non-food, but generally promotions and discounting were (worryingly) rife.
Tesco and Sainsbury’s
To reiterate my caveats on retailers’ Christmas trading statements from last week:
- Unlike FY accounts, they are unaudited
- The reporting period is arbitrary and even a day’s shift either way can heavily distort the numbers
- Retailers basically have free rein to put out whatever messaging they wish
- They are predominantly sales-based, with limited or no reference to profits or margins
Sainsbury’s duly confirmed the strong trading figures implied by last week’s Kantar release. For Q3 (the 16 weeks to 6 January 2024), the UK’s 2nd biggest retailer reported like-for-like sales (excluding fuel) growth of +7.4% (like-for-like sales (including fuel) increased +5.3%). This was driven by strong grocery sales, which increased +9.3% over that period. For the shorter Christmas period (6 weeks to 6 January 2024), grocery sales were up +8.6%. Rather than a deceleration in demand over the festive period, this reflected a sharp decline in inflation. Significantly, volume growth was in positive territory.
A slightly less rosy picture on the non-food side. General merchandise sales declined -0.6% in the quarter and -3.7% during Christmas, impacted by the closure of Argos stores in the Republic of Ireland and a strong comp last year. Clothing sales also declined -1.3% in Q3 and -6.0% over Christmas. A red flag here also in that Argos reported a strong Black Friday, but also cautioned of a highly promotional market in the run-up to Christmas.
Not to be outdone, Tesco also released stellar figures and upgraded its full-year profit guidance to boot on the back of a “stronger trading performance than anticipated”. The UK’s largest retailer reported a +6.9% increase in like-for-like sales in Q3 (the 19 weeks to 6 January) and a +9.2% rise in like-for-like sales in the four weeks to Christmas. As a result of strong trading performance, the business also increased its profit guidance to £2.75bn, from £2.6bn to £2.7bn previously.
Whether Tesco outperformed Sainsbury’s or vice versa is largely a moot point – both gained market share. For the caveats already listed, it is also difficult to compare the performance of Tesco and Sainsbury’s relative to those of Lidl and Aldi. The two discounters reported higher top-line growth (+12% and +8% respectively) and may have gained more market share, but neither gave a steer on like-for-like growth and it is fair to assume that this was considerably lower than the figures reported by either Tesco or Sainsbury’s. And in terms of profit? No contest. Lidl may sit proudly at the top of notional “winners” over Christmas, but did it even turn a profit at all? (for the full year 2022/23, it remained in the red).
Marks & Spencer – firing on all cylinders
A long time coming, but Marks & Spencer sustained, even accelerated, its strong performance over the festive period. In the 13 weeks to 30 December, M&S saw its UK like-for-like sales grow by +8.1%. Food sales surged by +10.5% on a total basis and +9.9% on a like-for-like basis, which M&S said was helped by supply chain improvements and growth in categories such as meat, poultry, produce, grocery and in-store bakery. It also claimed to be the top-performing grocer in volume growth terms.
So long the poor relation to food, clothing and home also performed admirably. GM sales grew by +4.8% on both a total and like-for-like basis. Such as we are able to differentiate in an increasingly multi-channel world, GM store sales increased by +2.0% and online sales rose by +10.9%, boosted by strong demand for click & collect. Overseas blotted the copybook very marginally, with International sales declining by -6.4%, driven mainly by the “planned timing of franchise shipments in the Middle East and Asia” and challenging market conditions in India.
M&S chief executive Stuart Machin said: “We enter 2024 with a spring in our step, but clear-eyed on the near-term challenges. We are determined to deliver our objective of driving 1% growth in market share in both businesses and to up the pace of our transformation: keeping a relentless focus on trusted value; accelerating our store rotation and renewal plans; doubling down on our supply chain programmes to improve availability and lower costs; and resetting our data, digital and technology strategy to unlock benefits in future years […] we are just at the beginning of what we can achieve. Lots done, lots to do, lots of opportunity ahead.” Perhaps echoing the mood of retailers generally – increasingly confident, but by no means complacent.
M&S’ strong performance came in the wake of Next’s, who last week reported a +5.7% increase in sales for the nine weeks to 30 December and a profit upgrade. Rather than trying to decipher who out-performed whom, it is perhaps more telling to look at the common denominators between the two. Most notably, did either partake in Black Friday? No. Read into that what you will…
In other news…
General positivity from other, smaller retailers reporting this week. Fortnum & Mason reported a “record” Christmas (sales +17%), while Majestic Wine had its “best ever Christmas” (+8.1%).
A quick sales growth “roll call” of retailers reporting to date (broadly in terms of size, rather than ranked by growth rate): Tesco +6.9%, Sainsbury’s +5.3%, Aldi +8.0%, Lidl +12.0%, M&S +8.1%, Next +5.7%, B&M +5.0%, JD Sports +6.0%, Greggs +9.4%, Very +3.4%, Bodycare +8.2%, Majestic Wine +8.1%, Cotswold Company +10.5%, Fortnum & Mason +17.0%, Sosander +23.0%, Pandora +9.0%, Mamas and Papas +7.0%, Marks Electrical +17.8%.
Strong caveats notwithstanding (particularly around reporting periods and like-for-like vs total growth), each and every one of these is comfortably above the supposedly industry-representative figure from the BRC of just +1.7%. Of course, not all retailers performed well over Christmas and there will inevitably be stings in the tail of the Christmas reporting period (another retail adage being that bad numbers take longer to count…)
But all things considered, Christmas generally was far better than the BRC is inferring. Of course, the real proof will be in the “official” ONS retail sales figures that will be released on Friday 19 January. The only risk being that the ONS will mercilessly “seasonally adjust” the raw numbers to dilute the true picture and the media and economist community major overly on the month-on-month figures which will erroneously paint December in a worst light compared to November (when the reality is that barely a retailer in the land had a better November than December).
Whatever the numbers say, the key takeaways to date are:
- Very strong growth in food generally
- Fast falling inflation in food and a significant return to volume growth
- A more mixed picture in non-food
- Concerns that Black Friday was too influential and discounting was too prevalent
- Non-food promotions started early and were continued post Black Friday
- UK retailers with overseas operations saw weaker demand internationally than domestically.
Roll on next week for the December, Q4 and FY 2023 figures. The equivalent of Christmas Day for a retail anorak.