Another weak Christmas in store for UK retail.
- Verdict forecasts that total retail sales will increase by 1.5% in Q4, down on the 1.8% growth recorded last year
- Christmas shoppers will continue to prioritise food and health & beauty purchases and both sectors will outperform the wider market
- Electricals will struggle due to the lack of a breakthrough “must-have” gift
|Q4 2016 growth (year on year)||Q4 2015 growth (year on year)|
|Total retail sales||1.5%||1.8%|
|Food & grocery retail sales||2.3%||1.4%|
|Non-food retail sales||0.9%||2.0%|
“Retailers face yet another weak Christmas, with overall sales up by just 1.5% in the fourth quarter compared to the same period a year ago,” says Verdict Retail Content Director Patrick O’Brien. “While price rises caused by the historically weak pound will be largely staved off until next year, low consumer confidence in the economy post-referendum will keep spending down unless retailers can convince shoppers to bring forward big-ticket purchases ahead of those anticipated rises.”
O’Brien continues: “Retailers will attempt to hold their nerve and place less emphasis on Black Friday this year though, as experience has shown that it brings forward sales that would have otherwise been made at full-price, but those who have struggled throughout the year, especially clothing retailers, will offer major discounts.”
Food & grocery
The well-publicised retailer versus supplier skirmish between Tesco and Unilever at the beginning of October is indicative of what is to come both in Q4 and 2017 in the UK food & grocery market. The past year has seen the major grocery players battling deflation while having to sacrifice profit margin to remain competitive on price.
However, with post-Brexit currency headwinds beginning to bite, price rises will hit, albeit slowly. This is because with Q4 the ‘golden quarter’ for food & grocery, the major retailers will do everything they can – whether this be battling with suppliers or taking a further hit on margins – to hold off raising prices as they seek to win spend over the crucial festive trading period. Many key festive lines – such as seasonal vegetables and tins of chocolate – will likely have been purchased in advance to guarantee supplies and selling price, while retailers will have to absorb any unexpected cost increases on other products as they seek to ensure any consumer uncertainty doesn’t translate into diminished enthusiasm for Christmas food shopping.
Clothing & footwear
At just 1.4% growth, Q4 2016 will top off a dire year for the sector – the weakest since 2009 – as retailers have to work harder than ever to drive spend from reluctant shoppers. With shoppers increasingly immune to discounting tactics, focus will be firmly on the product and retailers to benefit will be those able to communicate value for money via design detail, quality, and regular newness such as ASOS, Zara and John Lewis. The plummeting pound will also provide a bit of Christmas sparkle as tourists take advantage of cheaper premium/luxury goods, benefiting retailers with strong international brand appeal such as Kurt Geiger, Burberry and Ted Baker.
Health & beauty
As one of the most buoyant markets in the face of economic uncertainty and unseasonal weather, health & beauty is forecast to achieve the strongest growth out of all retail sectors in Q4, at 3.8%. Across the pricing spectrum, product exclusives will be key for retailers in the run up to Christmas, helping to boost destination appeal and garner loyalty. While department stores will reign supreme over the premium segment of the market aided by new concession partners such as Charlotte Tilbury and Kat Von D; Boots’ performance will be bolstered by the strength of its lifestyle gifting offer, with online fashion pureplay Missguided a new addition to the likes of Ted Baker, Cath Kidston and Superdry, helping to target younger shoppers.
Electricals has been the driver of Christmas sales in past years, but there is nothing in the pipeline at the moment that can match the excitement of previous launches of game consoles, tablets or smartphones, and so we expect electricals retail to underperform the overall market. The latter category suffered the retraction of one of its key products, the Samsung Note, which will make many consumers think twice about being an early adopter of a just-launched product. Google’s new challenge to the Apple iPhone, Pixel, has generated a lot of interest, but its high price point may struggle to entice sim-free purchases. The smartwatch revolution appears to have failed miserably, with global shipments collapsing in Q3, but wireless headphones will do well, as will virtual reality headsets, though it may not be till next year that a winning ‘must have’ product emerges.
Though protected by the spike in housing transactions in March, this was due mainly to buy-to-let landlords buying property ahead of an increase in stamp duty, and so the boost to home retail sales has already played out. Low levels of housing transactions since then have dampened demand.
With the weakness of the pound threatening to increase prices next year due to the dominance of imported products, consumers planning to make big-ticket purchases may be persuaded to buy sooner rather than later, in order to get the best deal, though many will still delay until the post-Christmas sales.
We expect online sales to continue to grow much faster than overall retail, with Christmas gift shoppers being increasingly attracted to the convenience of 24 hour shopping. More retailers now offer click & collect and other collection options, and they have also invested in improving delivery services – offering same day and named day delivery as well as narrower time slots, making online shopping more attractive than ever.
For more information
For further information, or additional comment, please contact the Verdict Retail press office on +44 (0) 207 936 6624 or email email@example.com.