A large part of a retailer’s annual sales and profits occurs in the three months before Christmas. For this to work perfectly, retailers know that having the right goods at the right price in the weeks leading up to Christmas is essential.
Christmas planning for the next season starts just after last Christmas. This is not only true for gift-related vertical markets, such as toys, fine wines, perfumes & fragrance, luxury goods, beauty products and jewellery. Logistics are important: for example, supermarkets have to start stockpiling alcohol from September to ensure they have sufficient for Christmas. In North America the term ‘Holiday’ is used in preference to ‘Christmas’.
Christmas needs careful planning, but the old days of shoppers uninhibitedly searching up and down the high street for those perfect gifts, spending much more than they expected, are gone. Consumers spend a lot at Christmas, but spend it on fewer people. Compared to 20-30 years ago, when Christmas was mainly a domestic and family affair, they are now more likely to enjoy entertainment and meals outside the home with neighbours, friends and work colleagues as part of a range of Christmas occasions both before Christmas Day and afterwards. Christmas dinner for the family is still the lynchpin of Christmas festivities, but is now only one of several Christmas occasions.
For a few years, retailers started calling the October-December period the Golden Quarter, because it was the season when they made a lot of profit. This is no longer so. Christmas is now a time of regular price cutting, interrupted by a period of serious discounting starting around ‘Black Friday’. Christmas is no longer as golden: no quarter is given. very few UK retailers now reduce prices only for the four days of the 'Black Friday' bonanza: it is now a fortnight of discounts.
Price-cutting around Christmas (once a sign of desperation) might achieve growth in sales and profits if retailers were not already engaged in a constant price war for most of the year. There is clear evidence that the Black Friday promotions simply shift a proportion of purchases away from October and December into November.
ONS (Office for National Statistics) statistics show that in spite of all the price-cutting there is no evidence of any general increase in retail sales in the Golden Quarter compared to the years before Black Friday discounting was introduced. What is worse is the sense of shopper ennui or ‘discount fatigue’© (as the Centre for Retail Research calls it) created by so much price discounting that shoppers have often lost interest by December. This would otherwise have been the peak of the selling season.
The Centre for Retail Research 2019 forecast was sponsored by Vouchercodes.co.uk, RetailMeNot.com, Ma Reduc.com in France and Poulpeo.
Total retail sales at Christmas, as at other periods of the year, are made up of sales through stores and sales over the internet, catalogues and mail order.
Total retail sales = Store sales + Online sales.
Much of the comment in the media about Christmas reflects what is happening on the high street and largely ignores retail sales made online. The rapid growth of online retailing (an average increase in Christmas 2019 of more than +10% ) means that the sales of the average bricks-and-mortar store will shrink compared to the previous year, because most of the Christmas growth in sales has been gobbled up by online sellers. The news from retail stores will, therefore, tend to be mostly gloomy.
The impact of Christmas can be seen from the monthly sales chart 2004-2019 for the UK (Figure 1). Sales are at their lowest in January each year, then they rise to a peak in July (usually), drop back somewhat then rise rapidly from October to peak every December. Note that these figures are sales values and are not adjusted for inflation. They are not adjusted for seasonal changeseither: as the whole point of Christmas retail are to produce a seasonal change there seems little point in making corrections for it. So we prefer to measure sales growth or decline using financial data uncorrected and unadjusted. Examination of the chart shows that there has generally been reasonable growth in Christmas sales, although growth in Christmas 2018 and 2019 was comparatively low.
Christmas spending in cash terms (ie not allowing for inflation) has risen every year for the last nine years. Table 1 shows that growth in the last three years has fallen from an average of 4.1% (2017) to 2.1% in 2019.
UK Sales Growth in Cash Terms Each Christmas*
|Sales Growth Christmas period||+2.1%||+2.9%||+4.1%|
* Christmas period = from mid-November to the end of December. Percentages are in cash terms (ie not allowing for inflation) and not seasonally adjusted.
Sales growth in Christmas 2019 was low compared to previous years, but probably not as low as the amount of comment made at the time and in January 2020 suggested. Here we are talking about total retail sales (including online as well as offline retail provisision). If we adjust the ONS figures for monthly sales over Christmas 2019 (adjusting them for the shorter time period that CRR uses) in the six weeks to Christmas ONS data shows sales growth in real terms of the order of +1.78%. These are not our figures but those of the official Office for National Statistics.
We feel this figure of +1.78% is on the high side. But it is the result of massive price cutting by many retailers in November and December caused by the reluctance of shoppers to spend. So we are not comparing like with like when we compare ONS data for 2018 (when price cutting was more restrained) and 2019. A more accurate figure would be around +0.8% growth: this is growth in real terms (taking deflation and inflation into account) over the six weeks before Christmas and refers to an 0.8% increase in the quantity of merchandise shifted compared to the same period in 2018. Many prices were falling so rapidly (often changing on a daily basis) that a true estimate of price deflation for Christmas merchandise is impossible to determine. Accuracy in measuring average price increases is very difficult at a time when prices are changing frequently and most shoppers are buying a very different bundle of goods from normal.
Total UK retail sales over Christmas 2019 rose by almost + 2.2% in sales value (ie not adjusted for inflation). The pattern was mixed. Consumers were generally wary of spending money. In November 2019 sales fell compared to the previous year by -0.3%, compared to a rise of +4.1% in the same month in the previous year. This fall was probably caused by shopper concern about the political situation, a parliament that could neither agree to scrap Brexit or to implement it, and worries about the likely result of the December General Election. The average retailer in 2019 found it very hard to achieve the normal Christmas boost - hence the massive discounting of prices. However shoppers certainly did spend more in December (and increase of +3.4%), compared to an average of only +2.4% growth in December the year before.
As we see it, there are several key features of Christmas Shopping:
1. Christmas Spending Continues to Rise (Slightly)
UK Christmas spending (six weeks November-December) rose from £76.911bn in 2018 to £78.580bn in 2019, +2.17%. The U.S. achieved higher growth rates in both 2018 and 2019. Amongst our European partners, only France had better growth than the UK. Germany suffered a small recession at the end of 2019, caused by a combination of a slump in its sales of manufactured goods and the global trade wars, which affected spending by consumers.
Christmas Sales in the UK, France, Germany and the U.S. (£billions)
|2019 total||2018 % change||2019 % change|
2. Spending Growth at Christmas Varies by Kind of Business (Vertical Market)
Spending growth varies by market. The best results in 2019 were achieved by online businesses and the online departments of multichannel retailers.
By kind of business, grocery and supermarkets did very well this year to rise by an average of +2.4% (the average growth for all kinds of business was growth of +2.17%).
Christmas spending on non-food fell by an average of -0.6% (in value terms). Significant losers were clothing (-2.9%), household (-3.4%), hardware and paints (-14.1%), and music and equipment (-18.4%). Sales of computers, IT and telecomms fell -8.5%. However electrical household goods rose +4.0% and sales by pharmacists by +4.9%.
3. Continued Growth by Online Businesses
Online retailers (including online operations of multichannel retailers) grew many times faster than offline retail sales in every country shown on Table 3. In the UK, online growth in 2018 was +10.1%, growing to 10.7% in Christmas 2019. Bricks-and-mortar retailers cannot manage that level of growth.
Christmas Sales Online and Offline (£billions)
|Online 2018||Online 2019||Offline 2018||Offline 2019||Online growth 2019||Offline growth 2019|
[Offline= sales from bricks-and-mortar stores]
4. Traditional Physical Retailers (shops) Lose Out to Online Retailers
In a slow-growing retail market, the above-average rate of online growth means inevitably that sales growth in physical stores must be static or falling. In the UK, sales in 2019 fell by -1.5% in physical stores and by -2.3% in Germany.
As a result of the continued rapid increase in e-commerce sales, online retailers' share of Christmas trade continues to grow. In the UK online accounted for 32.4% of Christmas retail sales, in the U.S. 26.4%, Germany 26.1% and in France 20.3%. These trade shares relate only to Christmas of course.
4. Black Friday Continues, but Becomes Mainly an Online Phenomenon
The idea of Black Friday weekend sales continues to expand to become a fortnnight or more of discounts. It is becoming particularly an online phenomenon. More voices have been raised saying that Black Friday is collective suicide for the industry.
5. The Growing Importance of Mobiles at Christmas
In the UK mobile ordering at Christmas (using smartphones or tablets) was more than half of all online retail spending.