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.

One store that said it would not be swayed by the pressure to discount is department store chain John Lewis, which was heavily criticised last year for risking its bottom line after discounting heavily at the last minute, resulting in like-for-like sales growth of 27.4% to £78.61m in the week to January 3, 2009.

Barry Blamire, managing director of the John Lewis store in Newcastle’s Eldon Square, said: “We do not expect to be discounting in the way we did last year.

“However, we will be maintaining our promise to match the prices of our competitors, such as Fenwick and House of Fraser, which means that they won’t have an advantage over us if they decide to hold last-minute sales.

“We believe we won’t have to rely on this kind of sales tactic as we have seen confidence return to the high street over recent weeks, which is encouraging as we approach Christmas.

“While we were down by 5% on like-for-like sales during the second half of 2008, we have been up by about 4% over the last three months, which is a solid base to work on for the rest of the year.

“Much of last year’s price reductions were down to the fact that many retailers had over-ordered on certain products in the belief that a slow start to the Christmas period would turn into a massive rush.

“Although things did pick up, that rush never happened, leaving many managers to make the painful decision to slash prices to get people through the doors.

“I would think that most retailers would be a lot more cautious about going down the same road again this year.”

Many also believe that value-for- money chains such as Primark, Peacocks and Poundland will again enjoy the highest footfall as shoppers continue to hunt for bargains.

Primark appealed to cash-strapped consumers looking for affordable stocking fillers before Christmas last year, with the chain’s parent company Associated British Foods, which also owns grocery bands such as Twinings and Silver Spoon, seeing group revenues increase by 21% in the 16 weeks to January 3, 2009.

Mr Caines said: “Stores like Primark and Peacocks will continue to be popular with shoppers this year, purely because of where they have pitched themselves in the market.

“This has been helped enormously by the recession and their value prices mean they will retain customers, which will help maintain the aggressive roll-out of stores.

“This extra element will inevitably put pressure on other mid-market clothing retailers to bring down their prices in order to compete this Christmas.”

Those in the gloomier camp also include retail billionaire Philip Green, who recently went on record to say that markets had got “way ahead of themselves” and that business would be tough in 2010 with taxes and unemployment rising.

While retailers can do little to stem the tide of employment, some predict that many big ticket retailers may wish to highlight the fact that the temporary VAT cut is due to come to an end on January 1 next year.

The Government’s decision to reduce the VAT rate to 15% as part of last year’s fiscal stimulus package had been widely criticised by small business owners for creating an additional administrative burden for minimal gain.

In addition, most middle-market retailers claim that the reduction has made very little difference to their sales, and that any benefit has been hidden within a stream of reductions and discounts anyway.

Mr Caines said: “Although the change will largely go unnoticed by most lower and middle-market retailers, some of the those at the higher end will want to let shoppers know that they have a limited time left until the VAT rate goes back up to 17.5%. I don’t think this will be a major driver for retailers but it could certainly help.”

One way in which stores have managed to maintain their presence on the high street has been through sales on their websites.

If the speed of growth at Stockton-based e-commerce website developer Visualsoft is anything to go by, retailers look to be relying on their online sales more than ever.

The firm, which has been running for 30 years and is heavily involved with the region’s fashion retailers, has seen its workforce grow from 18 to 40 staff this year, and expects to add a further 10 next year to keep up with demand.

Tim Johnson, business development manager at Visualsoft, said: “The high street is dead as far as I’m concerned, as the future of retail is very much online, with companies able to integrate with a host of other platforms, including eBay, seamlessly through their websites.

“For me, it’s comparable to Disney choosing to do films with Pixar rather than traditional animation – it’s all about realising what kind of platform suits the modern consumer.

“Those firms that have placed the most focus on their websites, including John Lewis and Next, are now seeing their online sales far outstrip those in the high street.

“People used to go into town to browse a wide groups of stores. Now that many of these have closed down, they are less likely to make the trip for the handful that remain.

“With this in mind, we believe that it’s going to be a big Christmas for online retailers.”

However, the continuing postal strikes may prove to be the fly in the ointment for web-savvy retailers, and is something that could see consumers return to the high street in order to ensure their stockings are filled on time.

A recent survey by e-retail body IMRG revealed that more than three quarters of business believe that continued national postal strikes could significantly harm online retail sales this Christmas.

However, Johnson said that the most pro-active online retailers will use the strikes to their advantage.

He explained: “There are a range of alternative parcel delivery services and I would urge those firms worried about the strikes to switch provider and then make clear on their site that they promise to deliver on time.”

With most analysts and store managers unsure about how things will turn out this Christmas, it’s safe to say that the retail sector will once again be providing some of the more interesting stories come January.