Doubt cast over festive cheer on the high street

Nov 4 2009 by Chris Knox, The Journal

THE two months before Christmas are still the most important for retailers but, after last year’s slump saw the end of big names such as Woolworths, bosses are approaching the festive period with trepidation. Chris Knox reports.

THERE may be no end to the recession just yet but there have still been many reports that the economy is starting to stabilise and that the Government’s fiscal stimulus, designed to get people spending again, is starting to take effect.

Retailers will certainly be hoping so after suffering one of the worst Christmas’s in living memory last year, with many resorting to denting their bottom line through headline-grabbing price cuts in order to move stock.

Some of the biggest high-street names recorded dire sales figures last year, amid dwindling shopper numbers and bad news on the economy.

These included Marks and Spencer, which saw underlying sales slump by 7.1% in the three months to last December, despite two one-day sales in November and December when prices were cut by 20%. Similarly, fashion chain Next suffered a near 10% drop in pre-Christmas sales, while DSG, which runs PC World, suffering a 13% fall in computing sales.

However, it was Woolworths and Zavvi that shocked most when both firms collapsed into administration, leaving over 900 UK stores empty for months to come.

Despite claims from some analysts that the worst is over, retailers won’t have gleaned much festive cheer from the news that the UK economy contracted by a further 0.4% between July and September, and that the country is still very much in its longest recession since records began in 1955.

More worryingly, a recent report by the British Retail Consortium (BRC) said consumer sentiment could be set to weaken again before the end of the year, despite publishing figures showing that overall sales values rose 2.8% in September on a like-for-like basis.

Stephen Robertson, director general of the BRC, said: “For some customers confidence is trickling back. These are the best total sales growth figures since 2008. But we mustn’t get carried away. They are compared with a weak performance last September.

“As we enter the important run-up to Christmas, these results give some room for optimism. But consumer sentiment is volatile and could weaken again and, throughout the final quarter, all the comparisons will be with poor figures last year, when total sales growth dropped below zero.”

Many analysts believe that these mixed messages will leave many retailers confused as to what approach to take in the run-up to the festive season, with many already in the Christmas spirit while others appear more concerned about their chances.

Among those remaining “cautious” are catalogue store Argos, which saw its profits fall 7% to £80m in the six months to September 2009, and Debenhams, which saw minimal growth of 0.6% in the seven weeks to October 17.

Debenhams chief executive Rob Templeman said: “I think Christmas will be as promotional as last year. I can’t predict what the others will do. We’re planning on it being promotional.

“Although we think there’s some signs the wider macro-economy is improving, we still think it’s difficult to predict consumer behaviour.”

Market research firm Mintel also believes it will be a tough decision for retailers to make, with many of them still feeling the effects of heavy discounting last time round.

Richard Caines, senior retail analyst at Mintel, said: “This year is going to be difficult for retailers to plan as few have any idea what the level of demand is going to be.

“The situation they are facing is unprecedented, as last year was the worst Christmas ever.

“Many stores that were planning to roll out their promotions over a longer period in the run up to Christmas may have been spooked by the news that the recession is set to continue well beyond the festive period, and may decide to revert back to the kind of panicked discounting we saw last year.”