- Out of town retail parks recover but high streets and shopping centres languish
- Grocery spending to remain above pre-pandemic levels
Most UK households will wait until at least the final month of the year before putting up trees and other festive regalia. But for retailers it’s already beginning to look a lot like Christmas as people look to get present-buying done well before the second half of December.
Office for National Statistics (ONS) figures published last week showed that retail sales in October picked up for the first time since April 2021, which was itself a bumper month as lockdown restrictions on non-essential retail were removed.
Clothing, department stores and toy shop sales all grew last month, with some retailers saying that early Christmas shopping helped to boost trade, ONS chief economist Grant Fitzner said.
The good news for landlords is that not only are people shopping early, more of them are doing it in person. ONS data say the proportion of retail sales made online dropped to 27.3 per cent last month – the lowest since Covid-19 restrictions were first imposed in March 2020. This is still considerably higher than the 19.7 per cent level recorded in February 2020.
Spending on gifts and celebrations will top £21bn this year, which is 12 per cent higher than last year and marginally above 2019 levels, according to PwC.
Average spend per head is likely to increase to £428, compared to £384 in 2020.
More than half of the 2,000-plus respondents to the firm’s annual survey on festive shopping habits said they planned to get all of their gift buying out of the way by the end of November, which bucks a trend that had been shaping for most of the past decade when shoppers held out for last-minute discounts from retailers who had overbought and were discounting early.
“Until 2019, Christmas shopping had been getting later,” said PwC director of retail strategy Kien Tan.
The pandemic changed this, as an online spending surge meant people had to order early to make sure deliveries arrived on time. Present buyers this year are also ordering early as supply chain challenges make getting hold of the gifts they want trickier.
Retailers have generally been bullish about their ability to handle supply chain disruptions on recent earnings calls.
For instance, B&M European Value Retail (BME) chief executive Simon Arora told investors that its “stores are fully stocked”, while Marks & Spencer (MKS) head Steve Rowe cited greater operational efficiencies, including simplified product ranges and capacity improvements as being his company's way through the period.
Some categories are likely to be more difficult than others, though. Halfords (HFD) chief financial officer Loraine Woodhouse cited ongoing supply chain disruption to its cycles business, but added that these are easing.
Bicycles are a category in which shortages have “surged”, the head of PwC’s retail and consumer business, Lisa Hooker, said.
Overall, online ordering for home delivery is set to ease from last year’s high of 63 per cent to 58 per cent of sales, with in-store spending increasing by 5 percentage points to 34 per cent. However, this remains markedly below the 45 per cent level retailers enjoyed before the pandemic.
Out-of-town retail parks are already trading above 2019 levels as customers stick to their own transport and avoid town centres.
Traffic to shopping centres – particularly older, underinvested locations – had already been in decline before the pandemic and may never hit previous highs given the switch to online, Hooker said.
The UK’s supermarkets are also set to benefit from a festive boom, with spending set to match last year’s heightened levels when many people were unable to travel, according to NielsenIQ.
Spending for the whole of the fourth quarter is expected to hit £33bn – similar to last year but 6 per cent higher than 2019.
Tesco, M&S and discounters Aldi and Lidl already reported market share gains in the three months to 6 November but all of the other major food retailers lost ground, NielsenIQ's research shows.
“Shoppers are returning to stores again and spending is expected to remain robust for the next six weeks with Christmas advertising campaigns now helping to boost festive shopping momentum,” said Mike Watkins, NielsenIQ’s UK head of retailer and business insight.
The supermarkets are grappling with higher inflation and supply chain issues, but “they are succeeding in keeping the lights on and we believe they should be looking forward to robust and high margin trade at Christmas”, analysts from Shore Capital said in a note last week.
Food’s relatively low proportion of household spending by international standards means that supermarkets should be able to pass on costs and enjoy improved margins, it added.
Christmas bonuses all round, then, although investors should give some thought towards distinguishing the stars from the turkeys.
