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Analysis: What we learned from the Christmas trading updates

On the surface, this week’s bumper crop of Christmas trading results presented a positive story for fashion retailers. 

Oxford Street

Sales at Asos, Ted Baker and Superdry soared, and even Marks & Spencer reported growth in its challenged clothing and home division.

However, many industry observers have been swift to highlight the top-line nature of the updates. As business pundit Nick Hood put it on Twitter, it is still a case of wait and see when it comes to profits. Retailers were also reporting against a relatively weak Christmas in 2015, when the weather was unseasonably warm.

That aside, the updates provided some useful insights into how fashion retailers are approaching trading in 2017. Here are some of the key themes:

Pricing

Unsurprisingly, given the ongoing impact of the drop in the value of the pound, pricing was mentioned in many of the trading updates. Both Primark and SuperGroup reiterated that they would not be rising prices in a bid to remain competitive, despite rising input costs.

Over at Asos, chief executive Nick Beighton heralded the etailer’s “unprecedented level of investment” in pricing for the fastest-growing quarter in three years. Similarly, M&S boss Steve Rowe credited lower prices for the unexpected growth in its clothing and home division. Overall, 2,000 lines across stores have been reduced in price on a like-for-like basis.

For many of those reporting this week, including Asos and Superdry, the weaker pound provided a welcome boost to international trading over Christmas, offsetting the rising costs of trading in the UK.

Discounting

Wherever there is mention of pricing, discounting will surely follow. This week’s updates backed up our observation towards the end of last year that retailers are taking more of a strategic, level-headed approach to price-cutting and promotional activity – and this strategy appeared to pay off over Christmas.

Fat Face’s anti-discounting pledge delivered 7.9% growth on full-price sales for the 54 days to 24 December 2016. Interestingly, in-store sales were the stronger for Fat Face during the period, flying in the face of wider high street trends.

A more targeted approach to promotions drove a gross margin increase at Moss Bros and residual stock was cleared, although chief executive Brian Brick warned that he expects the year ahead to be more challenging.

M&S took a similar approach, substantially reducing the number of promotions it held on and around Black Friday, holding one fewer clearance event compared to last year and reducing the amount of stock in its Sales by 7%. Debenhams also had less promotional activity, reducing markdowns and improving full-price sell through by 2%. 

Online sales

Online sales were healthy across the board, enjoying double-digit growth at John Lewis and Debenhams. Ecommerce sales were the real star at Ted Baker, up 35% in the eight weeks to 7 January compared with the same period last year. It may not be “news”, but it is worth noting in the face of wider reports that online sales growth is slowing.

The verdict

This week’s Christmas trading updates were something of a relief after Next rattled the markets last week by posting a decline in sales over Christmas.

However, retailers were trading against weak comparatives this year, and there was market share and spend to be grabbed following the collapse of BHS last year. Meanwhile, a shift in the reporting calendar meant there was an additional trading day included in John Lewis and Marks & Spencer’s results this year.

No doubt conscious of these factors, many retailers are battening down the hatches in anticipation of tougher times ahead.

But what we also saw this week is that the best retailers, the ones whose sales really soared over Christmas, see opportunities where others see challenges. Asos, for example, used the fall in the value of sterling to boost its international business. Let’s hope more retailers follow suit in 2017.

 

Readers' comments (1)

  • BHS share of clothing market was 1.5% in 2015.

    By comparison Marks and Spencer had 9.4%.

    Unsuitable or offensive? Report this comment

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