The first of this year’s Christmas adverts were unwrapped this week, but the festive cheer failed to mask an underlying anxiety as we wait to see how the Black-Friday-to-Boxing-Day period plays out.
Some retailers are heading into Christmas with wind in their sails. Primark released a robust set of results this week – although its rapid store expansion hid a slight dip in like-for-like sales – and several others have reported strong trading in recent weeks.
However, Mothercare’s notice of intent to appoint administrators comes hot on the heels of Bonmarché’s collapse last month. While both of these companies have suffered from outdated business models, they have also been hit by macro conditions that are affecting the wider UK industry.
The steady slump in consumer confidence has been compounded by rising costs, particularly for bricks-and-mortar retailers. A report from the Treasury last week underlined what the industry has been arguing for years – that the business rates system is broken – and yet it seems unlikely the government will take any action this side of Brexit.
Despite this and the other costs of doing business, on the surface of it, the British Retail Consortium-KPMG retail sales figures for October, released this week, are positive, and show a small year-on-year uplift. However, this was driven by “an extraordinary period of discounting”. As Paul Martin, UK head of retail at KPMG, put it, retailers were “peddling hard to win over disengaged shoppers”.
I fear this may manifest itself in even deeper discounting this Black Friday, and, if so, retailers will be ignoring the learnings from last year. The shock profit warning from Asos in December 2018 came after “unprecedented” discounting in November. Sports Direct’s Mike Ashley said it had been the “worst November in living memory” for retailers. Slashing prices further in a race to the bottom is not the solution.
Always a crunch time for fashion retailers, there is even more riding on the fourth quarter this year, and business leaders must hold their nerve. Heavy mid-season discounting is only a short-term fix, and the impact on margins could do lasting damage. To get the tills ringing this Christmas, retailers should instead focus on getting their product, distribution and shopping experience right for their customers.