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Will the tills ring out for Christmas?

A new report predicts a bumper Christmas on the high street. But what are retailers doing to grab a share of festive spend.

After last year’s forecast that Christmas would be the worst for 25 years, retailers should be able to breathe a sigh of relief in 2007, according to Verdict Research. The retail analysis firm says shoppers will spend “more than ever” in the run-up to Christmas, with sales in the final quarter of the year set to reach £77.9 billion – a 3.8% increase on last year.

Following a difficult summer, Verdict says fashion retailers will receive a welcome boost in the last quarter, thanks to well-planned promotional activities from retailers to ensure they bag their share of the Christmas spend. However, the research group also warns that consumers will rely on credit to fund their spending and will be forced to tighten their belts in the New Year.

Verdict’s report says high-profile advertising from the larger retailers has become much more prevalent this year, and that smaller businesses are using promotional events such as shopper evenings to encourage early buying.

Department store John Lewis has tripled its advertising budget this Christmas to £6.2 million and is launching a TV advertising campaign. On top of this, the retailer is offering free standard delivery for the first time on all purchases made on its John Lewis Direct website, with no minimum spend needed to qualify for the offer.

The initiative, which was trialled this summer, started last month and is expected to run until Christmas. “Online sales are growing at 42% this year compared with 2006,” says John Lewis Direct head of web selling David Walmsley. “Our customers were telling us that they wanted more flexible delivery options, which included free delivery. The trials in the summer enabled us to understand the economics behind the initiative.”

Ecommerce giant Asos.com is also trialling a new strategy this Christmas by giving away a copy of its Asos-branded promotional magazine free with celebrity and fashion magazine Look, in an effort to reach more customers. The promotion, which launches on December 3, includes a £10-off voucher for customers who spend £100 or more on the website.

The etailer has also devised online and email ads, which will run until Christmas in a further bid to boost sales. The initiative follows last year’s festive campaign that ran in Grazia magazine.

Asos head of creative Matt Setchell says: “Our magazine is our strongest form of advertising and this promotion is a really effective way of getting the brand out there. I think Christmas is going to be a lot better than last year because the business has expanded, and awareness of the business has also grown.”

Last year, a raft of multiple retailers launched a ‘secret Sales’ initiative to kick-start Christmas Sales in early December via an email campaign. The likes of Oasis, New Look, Selfridges, Coast and Gap mailed money-off vouchers to swathes of customers, with discounts of up to 20%.

But New Look chief executive Phil Wrigley says the young fashion chain will be less promotion-driven this Christmas and has no plans to repeat last year’s email voucher campaign. “The pre-Christmas market is a gifts market, so discounting doesn’t give shoppers a good feeling,” he explains. “I think shoppers will be a bit cautious, but nothing more, because they don’t have last year’s utility bill hikes to worry about. We’ll never go on full Sale before Christmas.”

Nick Samuel, chief executive of womenswear retailer Hobbs, says the run-up to Christmas has been slightly subdued, but not enough to warrant extra promotional activity. “We’ve just started discussing when our Sale might start,” he says.

But Robert Kimpton, chairman of womenswear brand Viyella, is concerned that some retailers have started Christmas promotions earlier this year than they did in 2006, which may have a knock-on effect on trading strategy in the run-up to the festive season. “There are already some eveningwear promotions going on,” he says. “People are starting to promote already – that’s not a good sign. At this time of year, you have to be careful of consumers realising that if they wait long enough, they can get the item they want on Sale.”

Kimpton says Viyella’s strategy will be to maintain a full-price position for as long as possible. “We’re going to look at everybody else to see what they’re doing and review our trading stance every week,” he adds.

Research company Compability, which monitors discounting activity on the high street, says UK retailers have already started to unveil seasonal promotions, with some opting for a blatant approach and others choosing a more subtle tactic. Senior partner Pippa Maddison says: “The likes of H&M and Topman are going for a straightforward, obvious Sale, while other high street retailers such as Principles are offering a seasonal slant on their discounting.”

Maddison cites lingerie chain Ann Summers as one of the “cleverer” retailers when it comes to discounting. “Ann Summers is offering a £5 voucher to shoppers who buy one of its Christmas ‘treats’. That way, the retailer ensures that shoppers are spending their reward back in the store. The challenge for retailers will be to persuade customers to keep coming back,” she says.

But despite’s Verdict’s optimism, not everyone is convinced Christmas will be as rosy as the research suggests. The Confederation of British Industry expects to see more discounting in the run-up to Christmas, as the downturn in high street sales continues. Principal economist Lai Wah Co says:

“Clothing retailers have had a hard time recently, with sales down continuously for five months and only subdued growth expected for November,” she says. “Given what we’ve seen recently, it will be very tempting for retailers to discount, with the big surge coming later in the year than before. If consumers are being quite cautious in their spending, they will look to find added value and find the best deal.

“Retailers will have to find different ways of enticing customers. Conditions are probably a bit tougher, but if shops play it right and only discount when it’s appropriate for their business, there’s the opportunity to do well.”

Pali International analyst Nick Bubb says October was disappointing and November is likely to be difficult, despite all the early TV advertising.
He says: “The question is whether the normal late spurt of spending in December makes up for the weak autumn. Flat like-for-like sales overall is the best that can be hoped for in the current climate, as higher mortgage rates and lower consumer confidence bite at last.”
The British Retail Consortium agrees that higher interest rates could affect consumer spending.

“The sequence of interest rate rises means consumers have less to spend, but the most important thing is how retailers have judged their stock levels, because they don’t want to have a lot to shift and discount after Christmas,” says a spokesman. “But retailers are being helped in this run-up to Christmas with the arrival of colder weather, which didn’t happen last year.”

The result, according to Bubb, is a split of winners and losers. “Retailers with fresh ranges and marketing will do well,” he says. “I think Next will be a winner, but Marks & Spencer may underperform. Debenhams’ discounting may be less pronounced, so all eyes will be on Bhs and Arcadia in terms of Sales. Consumers buying gifts may not favour value retailers so much, but in this tough economic climate it’s likely they will hold their noses and still buy there.”

One independent retailer is particularly concerned about the potential media furore if sales fail to kick in soon. “If there’s nothing more serious to report on, GMTV will wheel out the story about Christmas sales and potential bargains. That really doesn’t help, but there’s nothing we can do. We must batten down the hatches.”

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