Retailing in the Week Ahead, Week 4, 2019

It is predictions week. Many retailers have begun to report last year’s performance and give a first glimpse of changes in this year’s approach to winning with consumers. At Retail IQ we celebrate this by publishing pages of predictions including the outlook for the upcoming year that collect inputs from every analyst on staff. It is a big effort and with one aim: to get you to lift your eyes from the path in front of you just for a moment to take in a view of the landscape all around you.

In recent years - since I spend a lot of my time looking at the view of the landscape and not enough time looking at the varied paths that line up across that landscape - I have been collecting detailed information on the UK retailers’ Christmas trading statements and analysing the results. This helps me keep my feet on the ground. Approximately 50 UK retailers report detailed information about what went according to plan and, more importantly, what went sideways during this reporting period.

The “last” of the UK Christmas trading numbers is out today with pan-European electronics giant Dixons Carphone PLC expected to release their figures today. As anticipated, this year was different than last year for most retailers in three ways. First, consumers were less cheerful this year than in 2017. Some of it was weather (too warm to get in the mood for Christmas, according to some retailers). Some of it was Brexit (too frightened of the future to buy gifts, according to others).

Second, the way retailers competed against direct competitors changed. Many retailers discounted too quickly last year and, as a result, did not do big discounts until late this year. The operators that performed best realised that consumers have begun shopping early and shopping late. The result was that they communicated more clearly about how their promotions work, when they would be available, and repeated themes throughout the holiday season. Some even said that it was more important than ever to avoid panic – retailers know whether their ‘offers’ are terrific and competitive or not - so if the terrific deals on offer are not selling through, it will only be a matter of time before consumers recognise the strength of the offer.

Third, eCommerce has changed in some important ways:

Maturity. In past years, all retailers had a ‘low’ base for eCommerce so growth was guaranteed, and the worry was cannibalisation. This is no longer true. Many retailers have had low growth or even negative growth on their eCommerce platforms. eCom in the UK is now a mature channel, especially at Christmas time, generating sales of more than 20% of all retail spend according to the UK’s Office of National Statistics.

To illustrate, Tesco exited non-food eCommerce this year to focus on food. Tesco stated that food grew just under 3% online and did not report the lost revenues from the non-food exit. However, the combined online performance for the UK’s biggest online retailer is what you would expect from a mature channel.

Mobile. Smartphone penetration is now such that all consumers – old and young, wealthy and getting by – shop with their mobile devices, allowing them to price compare, check assortments/availability, and ‘buy’ virtually while in the physical environment. This makes it difficult for retailers with not-so-terrific offers to get away with anything short of excellence. 

Last-Minute. Retailers have become good at offering last-minute eCommerce solutions so that a ‘last-minute’ shopper can go on a mobile app late at night and then pick up the item at a collection point the next day. This trend is not just for non-food: Waitrose claims they had a surge of last-minute click & collect orders this year, the first time they offered the service at 100 supermarkets.

Figure 1. UK Christmas Figures for Retailers that Reported Both LFL and eCommerce figures

PREDICTIONS FOR WINTER HOLIDAYS IN 2019/20

  1. Commerce: In 2018/2019, the ONS reported 13.9% growth in online sales during the month of December. In our tracker, 22 of 33 retailers that reported their eCommerce performance were stronger than the 13.9% growth. However, a few big names, in mature market share positions, reported slower growth. OUR 2019/20 PREDICTION: Expect some big names to have a slow growth online performance come Black Friday 2019. 
  2. Top-and-Tail: In 2018/2019, many retailers reported a flurry of behaviour early in the Christmas season (October/November) and at the end of the trading (final days of trading before the holiday). OUR 2019/20 PREDICTION: Expect more retailers to announce their Christmas offer earlier in the season than in previous years and add more services for last-minute shoppers.
  3. Cost-Cutting: Most retailers have had to scale back on stores, staff and other expenses. More dire predictions have appeared in the press with research agencies proclaiming thousands more job losses, store closures, and insolvencies. OUR 2019/20 PREDICTION: These predictions are not ‘net’ figures showing growth where retail is growing. Brands are investing in direct-to-consumer activities; many retailers are creating pop-up stores that bring their solutions closer to shoppers such as at Christmas markets and festivals, and retailers are bulking up their online picking capabilities. ‘Net’, there is a lot of growth in retail, but with new retailers in new places.
  4. Specialist Retail: Christmas is a time of year where specialist retailers can perform well.  2018/19 was no exception with Card Factory, Gear4Music, Foot Asylum, and Hobby Craft all performing very strongly this season. OUR 2019/20 PREDICTION: Specialists will continue to provide alternative growth platforms for high speed growth, particularly on non-mass market SKUs.
  5. Startup Enterprises: Uber just announced that their Uber Elevate platform will start taxi services in 2020 with commercial services launching in 2023. The race is on to rethink how we travel, how we shop, how we eat. Christmas 2018/19 did not reveal any ‘mind-blowing’ innovation.  Amazon Echo and Bitcoin were the big noises for 2017/2018. Smartphone shopping was big in 2016/2017. 2018/19 was mostly ‘big innovation’-free by comparison. OUR 2019/20 PREDICTION: We expect startups to be much more active in 2019/20 than they were in 2018/19. Get ready for innovation in payments, logistics/delivery, as well as AI. 

Creating a Check List for the Week Ahead

Our predictions could be completely wrong, somewhat right, or completely right. That really does not matter. What matters is that your own plans are ready for the best and worst extremes that retail has to offer. We encourage you to go back to your 2019/20 plans this week and check that you have the following items on your agenda:

  1. Mature eCommerce. With eCommerce categories or SKUs that are ‘mature’, find a version 2.0 idea or two.
  2. Earlier and Later. Look at your calendar for 2019/20. Are you doing things early enough, late enough?
  3. Efficiency. Do you have enough plans to cut costs and communicate those savings to your partners and shoppers? Spend some time reviewing your communication strategy for 2019/20.
  4. Specialists. Specialists provide some long-tail opportunities. Review your long-tail strategy one more time.
  5. Startups. Are you working with anyone that will blow your mind? If not, why not?

With that, as always, we encourage you to click on links to some other great pieces of work we published on Retail IQ in Week 3 – specifically our predictions articles:

In addition, if you get a chance, please share your thoughts or questions on ‘Predictions’, ‘Christmas’, or any other topic. Good luck in the week ahead. 

Regards,

Ray Gaul – Ray.Gaul@KantarConsulting.com and @KantarConsulting or @RayGaul on Twitter plus LinkedIn.

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