Limitations of retailer Christmas trading statements
This week’s Retail Note is a tentative review of the performance of the retail market over the festive period, ahead of official data in the coming weeks. And why indicators such as footfall and retailer trading statements need to be taken with a heavy pinch of salt.
6 minutes to read
Key Messages:
• Early indications are that Christmas 2021 was decent
• Fears of lockdowns and new restrictions did not materialise
• Omicron variant/self isolation dented rather than de-stabilised trade
• Non-food out-performed grocery due to easier comp base
• Food sales down against 2020 spike, but above 2019 levels
• Boxing Day footfall down -41% on 2019 levels
• Footfall a very weak barometer of overall trade
• Retailer Christmas trading statements notoriously unreliable
• Most carry significant caveats
• More clarity on retail sales performance from the BRC on Tuesday
• Official retail sales figures from the ONS only released on 21st January
Old media habits die hard
It is a hackneyed cliché to say that Covid-19 has changed everything forever. It clearly hasn’t. The post Christmas reporting season still has exactly the same limitations as it always had, the media being far too quick and glib in their assessment of retail performance over the festive season. And placing far too much emphasis on either spurious indicators or taking information wildly out of context.
We won’t get the official ONS retail figures for December/Q4 until Friday 21 January. Ahead of that, we will get something of a steer from the British Retail Consortium’s (BRC) December figures, which will be released next Tuesday (11 January). As ever, the irony is that by the time the official numbers come out they are “old news” and get scant coverage in the media. By way of sporting parallel, this is a bit like watching “Football Focus” but never bothering with “Final Score”.
But, of course, there are any number of other indicators that they can latch onto in the interim. Key ones are footfall data and the slew of retailer Christmas trading statements that will be released in the coming weeks. Neither are particularly illuminating.
"The post Christmas reporting season still has exactly the same limitations as it always had, the media being far too quick and glib in their assessment of retail performance over the festive season."
Footfall – a one-dimensional view
I am not a fan of footfall data at the best of times. In an increasingly complex and multi-channel retail world, counts of people walking past tickers seems a very one-dimensional and archaic way of assessing retail performance. Footfall does not equate to whether people actually buy anything, nor the size of any basket. Which is why footfall data and retail sales seldom correlate.
But, of course, the media love it, largely for its simplicity and the fact that the data is open to misrepresentation. “Shoppers shun Christmas sales as footfall drops amid Covid fears” ran the headline on the BBC on 27th December. Footfall on Boxing Day was actually up +47% on the same day the previous year, of course against a distorted comparable when much of the high street was under lockdown or constrained under the Tiered system.
Cue the supposedly watertight “pre-pandemic” comparisons. A seemingly bleak picture emerges. According to Springboard, overall footfall on Boxing Day was -41% down on 2019 levels. High Streets were down -37.7%, retail parks -40.2% and shopping centres -48.4%. The context that is sadly lacking is that Boxing Day 2021 was a Sunday and in 2019 it was a Thursday, so you are never going to be comparing apples with apples as Sunday trading hours are far more restricted. Plus, the weather was miserable as anything last Boxing Day.
"Footfall on Boxing Day was actually up +47% on the same day the previous year, of course against a distorted comparable when much of the high street was under lockdown or constrained under the Tiered system."
Equally, Christmas trading does not stand or fall on the outcome of Boxing Day, despite all media focus to the contrary. If anything, the reverse – in an ideal world, retailers would have shifted all their stock at full price prior to Christmas and the post Christmas period would actually be about re-stocking next season’s lines. It’s no coincidence that a growing number of retailers actually opted not to open last Boxing Day.
In short, bad footfall figures for Boxing Day shouldn’t be used as a barometer for trading performance over the extended festive period. But sadly they are.
Retailer trading statements
Surely retailer Christmas trading statements provide a much more telling, on the ground view? Only to a degree, for a host or reasons. Retailer Xmas trading statements are also notoriously unreliable, yet for some reason still seem to be treated as gospel by the media. There are four key limitations with them:
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.
Rather than complete fabrications, retailer Christmas trading statements are a version of a multitude of nuanced truths. The media game of putting retailers into “Winners” and “Losers” enclosures over the coming weeks is likewise over-simplistic. Unless two retailers have exactly the same reporting period, you are again never going to be comparing apples with apples. One day’s difference either way can swing sales by +/- 20%.
Any assessment of retailer trading statements in the coming weeks needs to heed these very strong caveats.
"The media game of putting retailers into “Winners” and “Losers” enclosures over the coming weeks is likewise over-simplistic."
The bigger picture
What is my early read on general performance over Christmas? It has not deviated much since we made our initial predictions. Definitely far stronger than 2020, all the more so since fears of lockdowns and further restrictions over the festive period thankfully did not materialise. Of course, renewed Covid-19 fears in the face of the escalation of the Omicron variant and high levels of self-isolation may have dented performance in the week preceding Christmas Day itself, but not enough to de-stabilise Christmas trading completely by any means.
When they finally do arrive, the official retail sales figures will be all over the place due to the distorted comparison base. Our tentative predictions were that for Q4 as a whole, total retail sales would grow by ca. +3% to +4%, with non-food (>6%) out-performing food (<2%) due to a far more challenging comp base in the latter. Food would be extremely hard pushed to achieve any growth in December at all, given the huge demand spike in 2020. Online will probably experience contraction of >-8% in Q4, possibly even double-digit.
Expect lots of noise on the retail market in the coming weeks, but context is everything.