The Retail Note | Retail: the new political football?

Written By:

Stephen Springham, Knight Frank

10 Jan 2025

10 minutes to read

Categories: Property Sector Retail World Regions UK London

Key Messages

• Xmas far stronger than reported in the media
• BRC reports retail sales +3.2% in Dec…
• …but up just +0.4% in Q4 as a whole
• Disruptive pattern of Black Friday v much in evidence
• Retailer trading statements all strong to date
• Tesco’s UK sales up +4.1%
• Sainsbury’s grocery sales up +3.8%
• Lidl (+7%) and Aldi (+3.4%) achieve “record Xmas sales”
• All four increase market share at expense of Asda
• M&S’ UK sales +5.9% (+6.4% l-f-l)
• M&S food +8.7% (+8.9% l-f-l), non-food +1.0% (+1.9% l-f-l)
• Next’s full-price sales rise +6.0%...
• …and it ugrades FY profit guidance by £5m…
• …but warns on higher costs and 1% price increases
• Agenda-driven misreporting in the media
• Retail being used to undermine Autumn Budget?

Confusing, conflicting, downright contradictory. Such has been the messaging about retail in the (short) year-to-date and for the Christmas trading period. A supposedly miserable Christmas that saw record spend? A supposedly desperate time for retailers that saw them achieve record levels of trading?

Of course, our friends in the media have a lot to answer for, retail well and truly exploited to meet their own agendas. Old habits die hard. Ring out the old, ring in the new. Or just ring out the old and then ring the old back in again?

The media had written off Christmas even before the reporting season started. Far too prematurely and, as is becoming increasingly clear, wrongly. In essence making the schoolboy error of not distinguishing between consumer demand and operational costs. The steady stream of reports from major retailers, admittedly not without major caveats, leaving them with ever more egg on their face.

Cutting through all the noise: Christmas trading was decent. Not a universal triumph. But decent.

BRC – setting a negative tone

In fairness, the British Retail Consortium (BRC) played into the media’s hands and agendas. Their December report was particularly downbeat, re-iterating the many additional cost pressures the retail industry faces in the wake of the 2024 Autumn Budget.

Almost lost in the gloom was the actual figures, which showed that retail sales ‘only’ grew by +3.2% year-on-year in December. ‘Only’ +3.2%, compared to a stagnating economy generally. Perhaps not a triumph, but by no means a disaster. But either way, barely reported in the media.

The BRC statistics for Q4 as a whole paint a less strong picture. Retail sales for final quarter of the year were up by a meagre +0.4%. What is interesting here is the monthly trends – Oct +0.6%, Nov -3.3%, Dec +3.2%. If ever evidence were needed as to the dangerously disruptive nature of Black Friday, there it is. By virtue of falling late, Black Friday in 2024 was largely captured in the December figures, rather than November’s. The unhelpful disruption to demand patterns is clear to see – a huge lull ahead of Black Friday and then massive fall-off after, the peaks and troughs effectively producing a zero sum game of no increase in incremental spend overall. But probably a lot of collateral damage to brands and gross margin.

Of course, as an industry body, the BRC’s responsibility is to defend its constituents’ interests, so its narrative was never going to be positive: “While we project sales growth to average 1.2% in 2025, this is below the projected shop price inflation of 1.8%. This means volumes are likely to fall this year, all while the regulatory and tax burden on retailers will increase costs by £7bn from rising National Insurance Contributions, increasing national living wage, confirmed in the Budget, and new packaging levies. With little hope of covering these costs through higher sales, retailers will likely push up prices and cut investment in stores and jobs, harming our high streets and the communities that rely on them.”

Manna from heaven for the media intent on discrediting the Autumn Budget. The BRC release came hot on the heels of another doomsday piece from the Centre of Retail Research purporting that ca. 170,000 retail jobs were lost last year, which the media, of course, lapped up. Desperate for empirical evidence to support the media agenda, the retail sector is unwittingly providing it, a reluctant poster child for something far more wide-reaching.

Food retailers – as good as expected

Contrast this narrative with those at the actual coalface – the retailers themselves. As I say every year, retailer Christmas trading statements are by no means gospel and need to be taken with something of a pinch of salt. The key caveats remain:

1. Unlike full year and interim accounts, the statements are unaudited.
2. They 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.
3. The statements are pre-occupied with sales and contain precious little information on profits.
4. Even the sales figures are gross rather than net. They will not take into account product returns, the proportions of which continue to escalate in a multi-channel retail world.

As we predicted (apologies if that gets repeated a few times in this and next week’s Retail Notes), the two discounters Aldi and Lidl were quick out of the blocks to release their festive trading statements. Even more predictably, both declared “record performance”, hardly surprising that both achieved “record” sales given their respective store bases continue to expand significantly. Anything but “record” performance would be tantamount to a total disaster for these two.

Lidl exceeded £1bn in turnover for the first time during the four-week lead-up to Christmas Eve, with sales increasing almost 7% year-on-year. Aldi’s sales topped £1.6bn in the four weeks to Christmas Eve, a +3.4% increase on last year. As predicted, neither provided a like-for-like figure, which would have been a more helpful barometer than the fact that Lidl sold over 16 million pigs in blankets and a turkey every second between December 19 and 24 (compared with 350,000 turkeys, almost 3 million sprouts, 50 million mince pies and 25 million pigs in blankets at Aldi). A lot of pigs in a lot of blankets.

More detail, as you’d expect, from the mainstream grocers. Tesco’s affirmation of it having its “biggest ever Christmas” trading period carries more weight given its maturity, size and status as the UK’s largest retailer.

In twin trading statements - one covering the 13 weeks to November 23, 2024, and another covering the six weeks to January 4, 2024 – the business reported a 3.8% increase in group sales over the festive period and a 2.8% jump in revenues in the third quarter. For the total 19-week period covering the two statements, Tesco reported a 3.1% increase in sales.

Stripping out international sales, Tesco’s core UK business grew +4.1% over Christmas, with food (+4.7%) slightly outpacing non-food (+4.0%). Both highly respectable performances.

Sainsbury’s total grocery sales rose +4.1% in its third quarter and were +3.8% ahead over the six weeks to 4 Jan. Sainsbury’s non-food sales grew +3.4% over the shorter 6 week festive period. Sainsbury’s total retail sales (including Argos) rose +2.7% over the quarter and were up +2.8% like-for-like). Again, more than respectable.

Arguably, the best performance in food reported to date came from Marks & Spencer. In a release we predicted to be strong generally, food was the standout, with total sales up +8.7% (+8.9% like-for-like) in the 13 weeks to 28 Dec.

The BRC release suggested that the total grocery market grew by just +1.7% (+1.6% like-for-like) in December. The release from respected market research house Kantar was far more bullish, showing that household spending on take-home groceries hit a record high at Christmas at £460 on average, with sales rising by +2.1% over the four weeks to 29 Dec, to surpass £13 billion for the first time ever.

Over this standardized time period (as opposed to the variable ones of the retailers themselves), Tesco, Sainsbury’s, Aldi and Lidl all enjoyed significant market share gains, largely at the expense of Asda and, to a lesser degree, the Co op.

Non-Food retailers – strong but cautious

As predicted (sorry), Next produced a stellar set of figures and even increased its full-year profit guidance. During the nine weeks to 28 December, the business posted an increase in full-price sales of 6% against the same period last year, adding £27m to its full-price sales and beating its previous guidance for the period of +3.5%. The retailer described the performance as an “over-achievement”, which allowed it to increase its full-year profit guidance by £5m to £1.01bn.

Alongside its results, Next announced its intention to offset increased wage costs (which it quantified at £67m) following the Budget with “unwelcome” price rises. The retailer said to mitigate costs, it would implement an increase of around 1% in selling prices on like-for-like clothing over and above any factory gate price increases, of which it said it had “fortunately” seen 0% inflation so far, and it expected price rises to remain below the Bank of England’s target for inflation of 2%.

No prizes for guessing what our friends in the media focused on. “Next blames clothes price rises on Budget wage costs” was the ridiculous headline on the BBC, the actual festive trading figures a mere footnote (and the profit upgrade not mentioned at all). Nearly 3,500 ‘Have Your Says’ on the website ‘debating’/bewailing price rises clearly achieving the result the BBC wanted.

Marks & Spencer’s non-food sales growth was more modest than Next’s (+1.0% overall, +1.9% like-for-like), but was at least in positive territory after many years of decline. As the business rightly observed: “transforming M&S is a marathon, not a sprint, and we go into 2025 shifting up a gear and raring to go as we accelerate the scale and pace of change”.

A common denominator between Next and M&S? Neither had anything to do with Black Friday, yet still achieved strong performance. A lesson for other operators? Most certainly.

Compare this with the performance at Argos – not altogether bad, but completely all over the place. Over Sainsbury’s Q3 period (16 weeks to the 4 Jan) Argos’ sales were down -1.4%. But over the shorter 6 week period to 4 Jan (including Black Friday), sales were up +10.2%. Over the 8 week period to 4 Jan (thereby including Black Friday in both years) sales were up +1.1%. Erratic is not the word.

Sainsbury’s stated re Argos: “Continued improvements to our digital proposition, delivery offers, product and promotions delivered positive traffic trends and sales growth in the key Black Friday and Christmas weeks. However, this was more than offset by the impact on sales and gross margins of subdued customer spending outside these key periods and a highly promotional environment.”

The shorthand of wildly fluctuating sales patterns, huge promotions and negative gross margin impact is hardly the most ringing of endorsements of Black Friday.

Some perspective

The definitive outcome on Christmas trading would ordinarily come with the ONS retail sales figures for December / Q4 / FY 2024, which are due to be released a week today (Fri 17 Jan). But, as outlined in previous Retail Notes, the figures are subject to so much adjustment (seasonal, calendar etc etc) that it is nigh on impossible to discern a definitive picture. Black Friday essentially being captured in the December figures rather than the November ones will give the ONS no end of headache, but also more licence than ever to be creative with the figures.

The reported month-on-month figures (on which the narrative will major) will be meaningless, the year-on-year ones hard to decipher on account of the timing of Black Friday. YoY Q4 figures may provide a more revealing picture – or maybe not.

Retailer Christmas trading statements may not be perfect for the reasons outlined. But the likes of Tesco, Sainsbury’s, M&S, Next, Aldi and Lidl are still far better placed to report on what is happening on the ground than those with a political agenda.