Xmas 2020: what can be achieved when stores are open
COVID-19 Market Update – 15/01/2021
11 minutes to read
Introduction
This is the 29th of a series of weekly notes (and 2nd of 2021) analysing the state of the UK retail market in the light of the COVID-19 pandemic. This note explores three key themes:
- BRC - the ‘worst retail sales for 25 years’
- Mixed messages from fashion retailers
- Other festive reporting to date
Please do not hesitate to contact myself or any of my retail colleagues if you require any further information.
Key Messages
• BRC: retail sales declined -0.3% in 2020
• Worst annual performance since records began (1995)
• Food growth (+5.4%) offset by non-food decline (-5.0%)
• But Dec figures surprisingly strong
• Dec retail sales +1.8% overall, +4.8% like-for-like
• Sales far stronger between lockdown periods (2-19 Dec)
• Grocery sales grow +7.3% in Dec
• Non-food store-based sales down -24.7% in Dec
• Tesco and Lidl both report record Xmas sales
• B&Q reflects buoyancy in post-lockdown DIY spend
• Ostensibly strong performance from JD, Halfords, Dunelm
• ASOS and Boohoo blaze a trail
• Other online pureplays (e.g. N Brown) fare less well
• Primark to take £1bn sales hit on back of lockdowns
• But still refusing – quite rightly -to launch online business
1. BRC – ‘the worst retail sales for 25 years’
Having called a crisis this time last year in declaring 2019 ‘the worst year ever for retail sales’, what were the British Retail Consortium (BRC) going to do this year in the face of a very real crisis in the shape of a global pandemic? Perhaps somewhat predictably, declare 2020 as the new ‘worst year ever for retail sales’.
As if this would surprise anyone and was worthy of any media coverage, given events of the last year and the fact large proportions of the retail sector were inoperable under lockdown for a number of months during the year.
For what the figures were worth, all retail sales fell by -0.3% in 2020, on top of the -0.1% decline the previous year. Strong food sales (+5.4%) failed to counterbalance a fall in non-food sales (-5%), once again underlining the huge polarities in performance between the grocery market and the rest of the high street.
To be fair, the BRC did lead on the slightly less sensationalistic headline ‘Briefly Opened Stores Boost Christmas Sales’ and this is a fair summation of a festive season like no other Taken in isolation, the figures for December were fairly decent – overall retail sales were up +1.8%, or an even healthier +4.8% on a like-for-like basis.
Given the scale of disruption and the fact that large proportions of “non-essential” retail stores in Tier 4 areas were forced to close (with virtually zero notice) from 19 December and were therefore deprived of both their busiest trading period and any semblance of Boxing Day/post Xmas sales uplift, these figures are actually surprisingly robust.
Of course, there are more devils in the detail that at a devils’ convention. Clearly, food growth in December was very strong (+7.3%), but performance in non-food was very nuanced. The BRC did not give a final total figure for non-foods in December, but the three month average increase of +2.5% indicates modest growth in the final month of the year.
Pitting stores and online as binary forces paints an equally predictable picture. Non-food store-based sales declined by -24.7% (-14.4% like-for-like) in December, while online sales surged +44.8%, slightly ahead of the 3-month average of +43.8%. In terms of retail sub-sectors, home categories, such as household appliances, textiles and accessories were the best performers. But there was notable (and overdue) improvement from clothing and footwear. But the indication is that health & beauty struggled.
There will be much more detail, if not total clarity, when the official figures from the ONS are released on 22 January. As a general rule, the ONS figures tend to stronger than those of the BRC. My tentative prediction (made, I stress, before 20 Dec and Lockdown V3) was that the outturn figure for all retail sales growth in 2020 would be between -0.5% and +0.5%, so is now likely to be at the bottom of this range (at best).
The BRC’s previous declaration that 2019 was the worst year for retail sales growth carried very limited sway at the time – the ONS showed that retail sales growth in 2019 was a more-than-decent (and above 10-year average) +3.4%. In 2020, it is likely to carry more weight – according to the official ONS numbers, the worst annual retail sales growth historically was +0.8% (interestingly, in 2005, neither in a recession, nor during a crisis). Only by some fluke will 2020 outperform this historic low.
What is certain is that restrictions completely destabilized traditional trading patterns over Christmas. The peak trading period was actually the window between Lockdown V2 being lifted on 2 December and the move (for many) into Tier 4 on 19 December, as opposed to the week before Christmas itself.
But in many respects, it is not about the numbers. The ‘stop-start’ approach to lockdown is deeply damaging for the retail sector and retail sales only achieve anything like their full potential when stores are open for business. And, screaming from every release, retail sales or otherwise, is the fact that there is still considerable consumer demand, but this can only ever be released when stores are not subject to lockdown.
2. Mixed messages from fashion retailers
Last week’s Retail Note highlighted the need to take retailer Christmas trading statements with a large pinch of salt. These caveats apply to all the analysis that follows.
No surprises that pure-play specialists ASOS and Boohoo blazed a trail over Christmas. To a degree this only partially reflects the fact that they were largely unaffected by lockdown restrictions. Spend migration from high street rivals is actually likely to have been fairly minimal – both achieved organic growth because they are excellent retailers and in tune with their customers (and that they in turn are happy to turn a blind eye to any residual ESG question marks in the media).
In the four months to 31 Dec, Boohoo reported a +40% increase in sales to £660.8m. UK sales were also up +40% to £357.2m. Sales in the US and Europe were up +53% and +30% respectively. On the back of this performance, the business upgraded its FY profit guidance and now expects revenue to grow +36%-38% for the year ending 28 Feb.
A similar story at ASOS. The business reassured that profits for the year would be at the top-end of expectations after a strong Christmas performance. Group sales surged +23% to £1.33bn in the four months to 31 Dec, with the UK up +36% to £554.1m. Did ASOS underperform Boohoo, on the basis that the trading periods were the same? In percentage terms maybe (+23% vs +40%) but not in cash terms (+£249m vs +£188m). Why it is always dangerous to read too much into the headline numbers.
At the other end of the Christmas performance spectrum was Primark. As a purely store-based operator, it remains at the very sharpest end of restrictions and lockdowns. Sales plunged -30% in the 16 weeks to 2 Jan and profits are expected to only “break even” this year. Owner AB Foods warned that it would take a hit of £1.05bn on lost sales if lockdowns remain in place until the end of February.
Cue incredulity in many parts of the media that Primark is still not launching online. Quite the reverse - Primark actually opened five more stores over the festive quarter and pledged to “continue to expand retail selling space”. Those clamoring for it to go online clearly believe either that lockdowns are here to stay, or don’t understand the dynamics / economics of retailing or think that it is worth compromising the business’ hugely successful business model in a costly attempt to try and recoup (significant but temporary) lost sales. Now is not the time for knee-jerk responses.
Strong figures from JD – like ASOS, Boohoo and Primark ,one of the strongest brands in UK retail, but unlike them, a multi-channel operator. Like-for-like sales rose by more than +5% in the 22 weeks to 2 Jan, prompting guidance that profits would be “significantly ahead” of forecasts – at £400m as opposed to initial forecast of £295m. But it warned that its UK stores are “likely” to be shut until at least Easter. The retailer said customers “readily switched” between its stores and online business in the run-up to Christmas – as we always say, consumers shop brands, not channels.
Proof of this mantra from N Brown. The online fashion pureplay posted an -8.8% decline in group revenue during the 18 weeks to 2 Jan. Sales at N Brown’s five biggest brands – JD Williams, Simply Be, Ambrose Wilson, Jacamo and Home Essentials – slipped -1.4% during the period. They had tumbled -25.1% during the first quarter of its fiscal year. Online is not a panacea and being an online-only operator is by no means a bullet-proof defense against wider industry pressures.
M&S results are usually a mixed bag at the best of times, which these are clearly not. Given current market conditions, it is even harder now to discern whether figures are good, indifferent or merely reflective of the market. Overall, M&S’s third quarter group sales (for the 13 weeks to 26 Dec) were down -8.4% to £2.76bn. Overall UK sales were down -8.2% to £2.52bn, with UK like-for-likes down -7.6%.
Needless to say, the clothing and home figures were ostensibly much worse than the food ones. Clothing and home revenue fell by -25.1% (-24.1% like-for-like) overall. Online was perceived to have performed well (total online clothing and home sales rose +47.5% to £353m during the quarter), but the reality is online only absorbed a relatively small proportion of lost store-based sales (-46.5%).
Although in positive territory, the performance of M&S’ food division was arguably more disappointing. M&S food sales grew by just +2.2% (+2.6% on a like-for-like basis). In the context of a grocery market that enjoyed record spend in both November and December and is likely to have recorded growth of 6%+ in Q4, this seems a relatively pedestrian performance, all the more so in that its costly tie-up with Ocado is now up-and-running and the supposed online hole in its armoury has now been filled.
3. Other festive reporting to date
The UK’s largest retailer Tesco mirrored trends at its Big 4 competitors Sainsbury’s and Morrison’s in reporting a record festive season. For the 19 weeks to 9 Jan, total UK sales grew +7.6% (+7.2% like-for-like) to £14.69bn. Growth accelerated over the peak Christmas season, with sales ahead +8.4% (+8.1% like-for-like) over the final 6 weeks of the trading period.
The ongoing impact of COVID-19 was apparent in a number of trends reported by Tesco. Larger superstores saw the strongest growth as customers favoured bigger but less frequent shopping trips – a major (but positive) reversal on patterns of a few years ago. Online sales grew by +80% and the business undertook more than 7m Christmas orders. But costs also rose considerably and Tesco now expects the pandemic to cost it £810m this year, an £85m increase on previous forecasts. Whether these trends are permanent (as many assume) or just temporary we will only discover in the fullness of time.
Predictably, Lidl also reported record sales (as it does every year). For the four weeks to 27 Dec, revenues surged 18%. Positive dynamics that underpinned this were an increase of +25% in basket size and year-on-year growth of +22% in Lidl’s Deluxe own-label range, further evidence that consumers were willing to “trade up” over Christmas. Interestingly, the business also flagged the success of its Lidl Plus loyalty scheme which launched in the UK just before Christmas.
Further proof of post-lockdown buoyancy in the DIY market in Kingfisher’s figures. The B&Q and Screwfix owner now expects full-year profits to be at the top end of its £667m to £742m estimate, following continued strong trading in its fourth quarter. In the six weeks to 6 Jan, group like-for-like sales were up +16.9%. Like-for-likes for the financial year to date (1 Feb 2020 to 9 Jan 2021) were up +6.5%, a huge reversal on the -24.8% slump reported in Q1 when stores were closed during Lockdown V1.
Halfords reported its “best ever Christmas week” in recording an +11.5% rise in group sales in the 13 weeks to 1 Jan. The retail and autocentre divisions enjoyed growth of +7.7% and +30.5% respectively. On a like-for-like basis, sales were up +9.8% across the retail division, driven by a +35.4% jump in cycling sales. Halfords’ performance cycling business Tredz posted a +51.2% rise in like-for-like sales during Q3, while the retailer’s autocentres delivered like-for-like sales growth of +21.1%. Conversely, motoring sales declined 8.-4% on a like-for-like basis during the period.
Dunelm’s total sales rose +11.8% (+10.8% like-for-like) to £360.4m in the 13 weeks to 26 Dec. The value homeware retailer’s online revenue accounted for 40% of overall sales during the period, nearly double the 21% it accounted for during the same period the previous year. Dunelm has been impacted by store closures due to local and national lockdowns during the period, but said that when stores were open it “performed significantly ahead of the market [as] consumer demand for homewares remained buoyant”.
Double digit growth at some retailers, record sales performances at others. You could be forgiven for thinking we were actually in a retail boom rather than protracted period of lockdown - c.f. my caveats on reading too much into retailer Christmas trading statements…