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Sales v margins: which is the best Christmas strategy?

Today’s crop of Christmas trading updates underlined the extent to which discounting now holds fashion retailers to ransom. 

Strategies varied – some slashed prices throughout November and December, while others held firm until Boxing Day – but neither approach was truly winning.

John Lewis & Partners vowed to stand firm behind its “never knowingly undersold” price promise after reporting a 2.5% rise in sales for the seven weeks to 5 January, even though it was forced to match its competitors’ steep discounts, which put pressure on its margins.

However, the John Lewis Partnership, which includes supermarket Waitrose & Partners, admitted that it may have to axe its staff bonus this year, as it expects its full-year profits to be “substantially lower” than in 2017/18. It blamed the margin pressure, as well as lower sales growth and investment in its IT capability.

“It’s really difficult to make that [price-matching] pledge work in a market like this,” said retail analyst Richard Hyman. “John Lewis is still one of the strongest brands in retailing, but [even] it is finding the pace of change very challenging.”

Meanwhile, Marks & Spencer took the tough decision to pull back from Black Friday discounting last November, which contributed to a “very challenging” month. Its clothing and home sales declined 4.8% in the 13 weeks to 29 December. However, it did not give details about its margins, which were presumably better protected by the focus on full-price sales.

It comes after Mothercare yesterday said a move away from heavy discounting was partly to blame for an 11.4% fall in sales for the 13 weeks to 5 January, although again, it did not give an indication of the impact on margins – a common and frustrating feature of the Christmas trading updates.

The real loser this morning was Debenhams, which reported a 3.4% drop in group like-for-like sales for the six weeks to 5 January despite taking part in the pre-Christmas discounting frenzy. It warned that its reinstatement of “tactical promotional activity” to stay competitive means margins will be hit hard in the first half of the new year.

Dan Simms, co-head of retail agency at property services firm Colliers International, said: “Today’s results are a mixed bag. Those retailers that we expected to perform poorly, have done. But overall, there hasn’t been the armageddon the industry was fearing. Having said this, many retailers are being cautious about the information they are disclosing at this stage. We currently have a fragmented snapshot of sales figures, but only some hints about bottom-line margins and profits.

“I suspect that a number of retailers sacrificed profit for sales over the 2018 festive period, starting with Black Friday and continuing all the way through until Christmas Eve. Those that didn’t participate in Black Friday may have fared moderately better, but the truth is that the retail landscape is becoming increasingly competitive.

“This is no more apparent than at John Lewis & Partners, which has hinted today that its usual staff bonus may be cut – further evidence that even the most stalwart of high street retailers are finding it ever more difficult to compete and preserve margins.”

Investment in digital channels proved a much wiser strategy over Christmas. M&S, for example, managed to partly offset the dent in sales from its store closure programme by improving its online offer during 2018 – making the site faster and using more inspirational photography.

Ecommerce also drove an uplift in sales at Joules and Next, among others.

However, Ed Cooke, CEO of retail property organisation Revo, said this should not be interpreted as evidence that the internet is killing the high street.

“This reading is too simplistic,” he said. “Some of the most successful retailers over the Christmas period have invested in their portfolios to create better customer experiences and drive sales, both in store and online. With 85% of sales touching a physical store, it is clear our high streets and shopping centres remain an integral part of the omnichannel shopping experience.” 

Readers' comments (1)

  • darren hoggett

    Although I'm biased, the retail landscape certainly favours well run Indies going forward as the multiples are oil tankers trying to tap dance.

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