Slow Christmas Affects Retailers

The new year begins with gloomy economic predictions, unfortunately, recent figures showing last Christmas was a bleak affair for many retailers have done nothing to lift the mood.

Christmas 2007 will not be remembered as a vintage year in the retail sector. With the press talking of challenging times for the British economy, as well as talks of a weak housing market, credit crunch and even recession, consumers decided en masse to stay home and save the pennies. In fact, for the British Retail Consortium (BRC), it was the worst December figure since 2004.

Kevin Hawkins, director general at the BRC, says, “This result is somewhat worse than expected and points to a very challenging first half for 2008. Given that the full effects of the Bank’s previous increases in interest rates have yet to be felt by many households, retailers and manufacturers need a rate cut now – preferably a full half-point.”

Helen Dickinson, head of retail at KPMG, adds, “Sales did grow, but, as the worst performance since March 2006, growth can only be described as weak. In the lead up to Christmas, there were huge daily swings as shoppers replaced even spending patterns with a smaller number of bargain-hunting ‘big swoops’. Sector performance also varied. Clothing and footwear sales actually fell in December for a third consecutive month, while food and drink, toiletries and cosmetics grew.”

Even multiples did not enjoy the best of times. Both Sainsbury’s and Marks & Spencer saw their shares tumble after reports of lower-than-expected Christmas performances. Part of the responsibility for this slow Yule was attributed to consumers leaving their shopping to the last week. Figures also confirmed that sales only started to really pick up in the ten days preceding the 25th December.

“For us, the rush happened very late,” says Steven Salamon at Wally’s Deli, in Cardiff. “People finished work on the Friday, so they left all their shopping to the last minute. Saturday 22nd, Sunday 23rd and Christmas Eve were very good for business, but overall the turn up was poor. Normally, the festive period lasts for around six weeks, so three good days weren’t going to make up for the loss.

“I believe this situation was partly due to the credit crunch, but the reports people read in the newspapers certainly had an impact. When they saw that even the multiples were not doing great, they started to think, ‘if no one is spending money, why should I’,” he adds.

However, other retailers have experienced different fortunes. John Lewis, for example, was among the winners with sales up by 6.2% for the department stores and 4.1% for Waitrose. Charlie Mayfield, chairman at the John Lewis Partnership, says, “I’m pleased with the performance of the divisions, particularly in the context of the demanding market conditions we faced during this important trading period. Looking ahead, we expect the trading environment to continue to be very challenging this year.”

Some independent retailers also recorded good sales and enjoyed a prosperous festive period. Helen Knight at Estrella Delicatessen, in Winslow, explains, “It was our first Christmas in business, so we didn’t really know what to expect. We only had our own expectations, but it was much better than we thought it would be. Everything went very well. I sold out on hampers and gift baskets. The first week of December was really slow, but after that it started to gear up and we received a lot of support from the local people.”

For Simon Hunter at Hunter & Todd, in Newnham-on-Severn, Christmas was also rather successful. He says, “December was very encouraging for us. Our sales were up compared to the same period in 2006. We are a small village with lots of speciality shops. It seems it was a pretty good time for the local retailers as the area starts to build up a reputation.”

As consumers worry about the economy, some retailers have started to feel the pinch and we can predicts things won’t get better in 2008. However, the situation is far from dramatic and shops should not be excessively pessimistic. “2008 will feel very different in terms of the pace of activity and for that reason there is likely to be increasing speculation about a recession. However, the expected reduction in interest rates to five percent by year-end provides some insurance against worst case scenarios,” concludes Graeme Leach, chief economist at the Institute of Directors.