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Online shoppers allow retailers to enjoy a happy Christmas

Omicron keeps consumers away from city centres but doesn't stop them from spending
Online shoppers allow retailers to enjoy a happy Christmas
  • Footfall dropped by a fifth in the run-up to Christmas 
  • Supply chain shortages meant fewer clearance items in end-of-year sales

As the worst fears about the damage the highly infectious Omicron coronavirus variant could have on people’s health have subsided, so too have concerns about its effect on business. 

Companies may be currently dealing with higher levels of staff absences, but the avoidance of further lockdowns and the easing of measures around self-isolation for fully vaccinated people has meant fewer disruptions to the UK's economy.

Although gross domestic product (GDP) could fall by about 1 per cent for December and January, “that should be recouped in February and March if Omicron cases fall as fast as they rose”, according to Capital Economics.

The best evidence of this can be seen in the key Christmas trading period for retailers. Omicron, and the ‘Plan B’ measures introduced by the government to try to stem its spread, meant fewer people visited stores, but spending appears to have held up.

“For most retailers, it’s been more positive than not compared to last year,” said Kien Tan, director of retail strategy at PwC. “Fundamentally, people have got money to spend, they didn’t have a great Christmas last year, [so they] tried to make it special." 

The first trading updates from retailers seems to bear this out. Next (NXT) said it would pay a special dividend of 160p a share after increasing its full-year profit guidance on the back of a strong Christmas. 

Sales for the eight weeks to 25 December were 20 per cent higher than the same period two years ago and £70m ahead of its previous guidance, the company said.

B&M European Value Retail (BME), meanwhile, had what chief executive Simon Arora described as “our best-ever Christmas”.

The discount retailer reported like-for-like group revenue growth on a constant currency basis of 0.1 per cent for the third quarter against a bumper period last year, when retail parks were among the handful of locations that remained open during lockdown periods. Compared with the same period in 2019, revenue was 22.5 per cent higher. 

Arora attributed this to taking delivery of Christmas stock early to avoid supply chain disruption and it appears people did decide to shop early. Retail sales rose 1.4 per cent month-on-month in November, with non-food sales climbing by 2 per cent, according to the Office for National Statistics.

Next said stock levels were "materially lower" than planned in the run-up to Christmas, which meant it sold more at full price and had fewer items to shift once post-Christmas sales began. Stock for its end-of-season sale was 18 per cent lower than two years ago, the company said.

The post-Christmas trading period initially looked like a wash-out. Boxing Day footfall was 43 per cent lower than the previous Sunday, but also the fact that it was a Sunday and several major retailers decided not to open were major contributors to this decline. 

Another is that Boxing Day sales are no longer the event they once were. The long-term trend is a decline in footfall because “we don’t need to shop as much on Boxing Day as we did 20-30 years ago when the only way to get the bargains was to stand outside a store”, said Diane Wehrle, insights director at Springboard. “Now we can do that on the internet – even from Christmas Eve.”

Indeed, despite footfall in the week to 1 January falling by 24.5 per cent compared with 2019, according to Springboard, spending looks set to have increased. Barclaycard forecast an average spend per shopper of £247 in the post-Christmas sales, a £61 increase on two years ago and an £85 jump on last year.

“I’m anticipating a big shift online this month,” Wehrle said.

Although consumers are facing an increase in National Insurance contributions and significantly higher energy bills, many feel “the squeeze is quite far away”, Tan said, particularly as they may not have spent as much on hospitality in the run-up to Christmas or on booking holidays given the ongoing uncertainty surrounding travel restrictions.

“All of that money has been channelled into retail,” he said. “And you’ve had capacity taken out of the market in some parts of retail. Last Christmas, there were department stores and clothing retailers that were around and having fire sales before they closed up for good.”

After the initial wave of retail closures, with Debenhams and Arcadia Group collapsing either side of last Christmas, insolvencies in the sector have been few and far between.

Debt is cheap and easily serviceable, unemployment remains low and government support schemes have largely done their job, said Will Wright, head of restructuring at Interpath Advisory – KPMG’s former restructuring arm, which was bought by private equity firm HIG Capital last year.

Although a moratorium on landlords taking action to recover rent arrears is due to expire in March, Wright does not expect a fresh wave of failures in the sector.

The length of the time the moratorium has been in place has meant most big retailers have resolved rent arrears either through a formal process such as a Company Voluntary Arrangement or through a consensual negotiation with landlords, he said.

“The bigger retailers have in the large part grasped that nettle and for those that have not there’s plenty of opportunity to do so through consensual negotiation. I think landlords have recognised they have no choice but to concede and to reach sensible agreements,” he said.