UK Retail – Lonely this Christmas?
Our expectations for Christmas and outlook for 2019, interim trading updates from Primark, Superdry, Dixons Carphone, Sports Direct and HoF.
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- Proof that even retailing superstars are not immune to the effects of the weather, with performance at both Primark and Superdry depressed by the ongoing mild weather. Primark warned that trading in November had been “subdued”, while Superdry reported a 49% decline in half-year profits down by 49% to £12.9m. This was despite a 3.1% uplift in overall group revenue to £414.6m.
- A £440m half-year pre-tax loss at Dixons Carphone didn’t exactly make for positive headlines either, but needs to be put into context. This was struck after an exceptional charge of £490m, primarily relating to a loss of goodwill of its mobile business. Excluding the charge, the electricals group would have made a £50m pre-tax profit, still 31.5% down on last year. Sales performance was more encouraging, with like-for-likes up 2% over the first half to 27 Oct, accelerating to 4% in the second quarter.
- Improving figures at Sports Direct, but caution that there will be “significant challenges” in turning around House of Fraser. The business (excluding HoF) posted a 15.5% rise in underlying EBITDA of £180.3m in the half year to 28 Oct. Group revenue rose 4.5% to £1.79bn. HoF suffered an underlying EBITDA loss of £31.5m in the 11 weeks to 28 Oct. Having previously proclaimed that Sports Direct could be “the Selfridges of Sport”, Mike Ashley declared a similarly bold ambition to “turn House of Fraser into the Harrods of the high street” (somewhat ironic that Harrods and HoF were one of the same group between 1959 and 1994).
Stephen Springham, Head of Retail Research:
“The Golden Quarter”. The retail marketeers certainly pulled out all the stops when they came up with a snappy term for the festive trading period. Or the “all important” festive trading period as it invariably also dubbed, almost as if the rest of the year didn’t matter.
Analysis of Christmas trade is usually an exercise in hyperbole – “shopping frenzy”, “retail bonanza” have historically been two of the more popular phrases used to hype up trading figures that were actually quite ordinary. Given the current retail climate, they curiously seem to be missing this time around and I’m not expecting to see them used much, if at all, in the extensive media coverage of Christmas trading in the coming few weeks.
The irony is that the retail sales figures themselves are actually likely to be quite good. We forecast that for Q4 as a whole, retail sales values will be up year-on-year by between 3.5% and 4% and volumes (i.e. net of inflation) up by between 2% and 2.5%. For December in isolation, we are forecasting value growth of between 3% and 3.5% and volume growth of between 1.5% and 2%. UK consumers will spend more this month than in any month in history – by my own crude calculations, monthly spending will top £50 billion for the first time. But don’t expect too many fanfares. Retail is about so much more than headline numbers.
Of course, the media have already made up their minds that this is going to be a terrible Christmas for the high street – after all, why change the narrative now? Even so, it is perplexing to see how much weight is still attached to footfall data as a definitive means of accessing the health, or otherwise, of the UK retail sector. Simply counting people that walk past a few beacons in a town centre seems a highly one-dimensional way of measuring what is an increasingly sophisticated multi-channel path-to-purchase.
Footfall data does have the advantage of being timely (data can be available on a real-time basis and can by reported weekly, only a day or so in arrears), while official retail sales data takes far longer to collate (the ONS typically reporting monthly with a three week time lag). The issue is that footfall data very rarely correlates to actual retail sales and that online is very lazily used to explain the difference.
How is “The Golden Quarter” panning out so far? In all honesty, it’s very difficult to say at this stage. Thus far, we only have official ONS data for October, the figures for November not being released until 20 December and the December/Q4 ones unlikely to come out before 18 January. October’s figures were relatively soft (values +3.4%, volumes +2.7%), but not disastrous. Messages re. Black Friday and November as a whole could scarcely be more mixed. Far too much has been made of Springboard’s footfall data (-3.2% in November, the biggest drop since 2008), but it would appear that Black Friday was anything but a roaring success (whatever that means).
Much more telling were the weekly figures from John Lewis. For the week incorporating Black Friday itself (to 24 Nov), sales were up by 4.2%. But did that counterbalance a lull the preceding week (-4.0%) and significant declines in the two weeks following (-4.0% and -3.8%)? Classic Black Friday spend diversion rather than incremental sales growth.
A soft October followed by a patchy November leaves December hanging in the balance. A worst case scenario of consumers reining in spending across the board, with October just a precursor to the rest of Q4? Or a more realistic scenario of there still being considerable pent-up consumer demand that will play out as the big day comes ever closer? A ‘late’ Christmas makes for a very nervous retail market, but is infinitely better than no Christmas at all.
My ‘headline’ expectations for Christmas? Footfall down (for the simple reason that it always is), media overdrive on the death of the high street, yet fairly robust retail sales figures (for those willing to wait until the second half of January for official confirmation). And over-analysis of retailer Xmas trading statements (which are unaudited and can be easily manipulated to tell whatever story a retailer wants to put out) and notional (but largely meaningless) division of individual retailers into ‘winners’ and ‘losers’ camps.
But, as I’ve already stated, the huge challenges currently facing the retail market transcend the headline numbers. Record retail sales won’t paper over margin and profit pressure, nor deeper structural shortcomings. A ‘bad’ Christmas will only intensify these challenges, a ‘good’ Christmas will only provide respite, not salvation.
“The Golden Quarter”. The “all-important” festive trading period. Retail neither stands or falls on one trading period. Retailing is for life, not just for Christmas.
Read our Retail Property Market Outlook for 2019 here.