Survivors eye challenging year ahead
Jan 18 2010 by Gary Stockdale, The Journal
WHAT a difference a year makes. This is certainly the case for the retail sector.
Looking back to the end of 2008 and early 2009 the situation was certainly bleak as the industry felt the full ferocity of the downturn in consumer spending.
In quite extraordinary fashion flagship retailers engaged in sporadic one-day sales in the run-up to Christmas 2008 as the speed of the downturn left many industry participants wrong-footed.
There was also the high-profile demise of Woolworths, a retailer caught out by the rise of e-commerce and ultra-competitive supermarkets.
Nevertheless, lessons were well heeded and the survivors cut their cloth accordingly. With the major retailers reporting their 2009 festive sales figures, the picture that is emerging in 2010, whilst still challenging, is one that would have been received favourably 12 months’ prior.
In 22 weeks to Christmas Eve, Next reported rising sales. At Next Retail, the largest component of the business, sales rose 4.6%, and 1.6% on a like-for-like basis, which excludes the impact of new stores. Sales at Next Directory increased 6.8%. This allowed Next to raise full-year profit before tax guidance to a range of £490 to £500m. Two factors were identified behind sales exceeding November's expectations.
Firstly, a more stable economic environment and secondly an improved product range.
In the 13 weeks to Boxing Day, Marks & Spencer reported an increase in group sales of 2.6%. In the UK gains were recorded in general merchandise, clothing and food.
In addition both online and international sales saw robust growth. In the area of food, Marks & Spencer noted its "biggest ever" Christmas fortnight, with record one-day sales on December 23. This was quite a contrast to 2008, where disappointing sales prompted managerial changes.
Chairman Sir Stuart Rose did, however, acknowledge the excellent growth achieved by the impressive John Lewis-owned Waitrose, a rival in the upmarket food retailing space.
This will no doubt be an area of focus for incoming chief executive Marc Bolland as he brings his expertise from his tenure at Morrison.
In the supermarket sector, Tesco shrugged off concerns of sluggish growth and the treatment of loyalty vouchers to post some very credible figures.
Group sales increased by 7.5% in the six weeks to January 9. It was the firm’s strongest Christmas performance for three years. Interestingly the Finest range enjoyed impressive growth as consumers selectively traded up in their purchases.
Similarly, Sainsbury enjoyed total sales growth of 6.2% in the 13 weeks to January 2. Chief executive Justin King attributed growth to the strategy of delivering great food at fair prices. Meanwhile, growth in the non-food range was four times the rate of that achieved on food.
However, a common theme emerging is the expectation of very challenging times ahead. Retailers are acutely aware that unemployment remains at elevated levels and, the VAT increase aside, headline taxes are also likely to be heading higher over the coming years as the budget deficit is addressed.
So although the consumer does not appear to have completely withdrawn, what appears obvious is there is a willingness to spend money on quality items and services offered at a competitive price.
Therefore, success in 2010 is likely to come from the ability to anticipate and quickly adapt to the demands of the value-conscious consumer.
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