Since the last turkey sandwich was eaten we’ve been awash with Christmas trading statements. But while like-for-like sales figures are great entertainment for media types, these numbers are masking the true picture so don’t be fooled.
Far too many turkeys this Christmas
This is due to a number of factors. One being the two days of extra trading retailers enjoyed this year because of Christmas Day falling on a Sunday.
These two days were fortuitously Saturdays (one in December and one in January), so with each equating to approximately 20% of a typical week’s sales this substantially boosted this year’s festive trading. In contrast, last year retailers lost two lots of 20% with Christmas Day falling on the Saturday.
Even when you factor in lost sales on the two Sundays (the day of rest accounts for approximately 8% of a week’s sales) this year then you still end up with an enforced like-for-like increase in sales compared with last year simply because of the timing.
This makes something of a mockery of the like-for-like trading figures being trotted out by all the retailers. When you take this into account then you find many retailers dropping from positive into negative LFL territory.
‘Relatively strong’ performers such as Sainsbury’s, N Brown, Signet, JD Sports, Dunelm and Morrisons all join their weaker compatriots languishing in negative territory. What it shows is that there has been very little growth in the sector over Christmas – especially when you take into account VAT.
When you also factor in the mild weather this Christmas versus the snowy weather of 2010, it makes the like-for-like numbers even more unreliable.
Overall then, it has been a terrible festive period and we are starting to see the casualties among the weak and weakish players in the market. The problem for many retailers is that we are in a market-changing environment, but many merchants have failed to recognise this fact and many are using yesterday’s business model (and balance sheet) for today’s operating environment.
It’s fair to say it is positively Darwinian out there. It’s not necessarily the strongest that are surviving but those who’ve adapted the best. There are clearly reasons why certain retailers are successful and one element is online.
Retailers can learn much from this tome
But shifting your business to the internet is not necessarily the panacea that many people believe it is. It’s more a case of retailers having gone through the painful process of re-structuring as a multi-channel business.
They need to have realised change has been taking place, to have reacted to it, and recognised how consumers are choosing the way they buy today, and the new ways in which they are choosing to communicate - through the likes of social media.
Those who’ve not been addressing these changes are now too late to catch up. Among those who left it too late is Blacks Leisure. I’d argue there is no place for a fashion-led outdoor clothing company on the high street in a market that is driven by price. Shoppers are instead going to the likes of Mountain Warehouse that has equally high quality products at half the price - and the company enjoys twice the margin of Blacks.
Clinton Cards is another such case. It still operates on the wholesale/retail model whereby it buys wholesale and sells retail. This doesn’t work any longer when you have Card Factory with its vertically integrated model of designing and printing its own cards. So competitive is its pricing that it has no problem whatsoever in opening new outlets opposite a Clinton’s store on the high street.
One argument put forward is that the likes of Clinton Cards and Thorntons are hampered by their legacy store estates holding them back from employing leaner multi-channel models that are enjoyed by others.
The reality is that such businesses have seen this market-changing environment coming for years but the weight of the problem has been too great to deal with quickly enough and now they are paying a very heavy price. And the full cast of retail names to hit the wall following Christmas has not yet been fully revealed by any means.
The full line-up will ultimately show that it has been a much tougher festive period than those largely pointless like-for-like numbers have so far suggested.
Dan Coen is Business Development Director at Zolfo Cooper