Shore Capital Stockbrokers has issued its prognosis for the UK retail sector over the upcoming Christmas period, suggesting that this year’s festive season will be ‘polarised in terms of performance’, with grocers and discounters likely to post a stronger performance than those in non-food channels.
Shore Capital’s report, Food and General Retail: Expectations for Christmas 2017, analysed both the recent BRC – KPMG Retail Sales Monitor (RSM) and Barclaycard data. Overall, it claims that the ‘data highlights weaker consumer confidence, which echoes the views of those retailers who have reported this autumn, suggesting that the UK consumer remains both fragile and volatile’.
Market Performance
Analysing the BRC-KPMG RSM data for the year to the end of November, Shore Capital reported a ‘headline level of activity that will once again disappoint those folks that seemingly [...] talk the UK economy down at this time, with total sales growth up by 1.5% against a 1.3% positive comparative.
‘Remember the tidal wave of commentators that stated the UK consumer economy would be in a depression post the Referendum by this time last year, never mind growth-on-growth.’
However, for non-food retailers, conditions remain ‘tough’, with total sales over the three months to November down by 0.6%, with total revenues 1.2% lower. Given the rise of online participation in the category, in-store sales are down 3.0% over the three months to the end of November.
‘Such sales momentum facing into rising overhead and labour costs is clearly a considerable pressure upon the profitability of many retailers, pressure that is likely to lead to more failures over the peak period,’ Shore Capital wrote.
The online channel, in particular, is likely to continue to eat away at store-based non-food retailers’ performance, with the rate of sales growth in online non-food standing at 6.5% in November, compared to a rolling three-month average of 7.3%.
‘However, with the aforementioned store-based contraction and the somewhat web-orientated Black Friday event in the month, non-food online participation rose to a mighty 27.4%, so over one in four non-food units bought in the UK in November 2017 was online,’ wrote Shore Capital.
More Optimistic
In grocery, however, the tables are somewhat turned. Food sales over the three-month period went up by 4.0% in total and by 2.8% on a like-for-like basis, according to the BRC – KPMG data, ahead of a 12-month rolling average of 3.4%.
‘The sales growth is driven by upward pricing, which kicks into volumes for both the food and non-food categories,’ Shore Capital wrote. ‘Whilst this is so, grocery volumes appear to be resilient, whilst mix, to our minds, is positive, driven by a number of processes including premiumisation of private label and the drive by many shoppers for food that enhances their well-being.
‘Whilst the festive period still needs to be delivered, we remain cautiously optimistic with respect to New Year trading updates from the grocers, where earnings and cash flow benefit from structurally lower operating expenses and capital expenditure.’
Barclaycard
Analysing the Barclaycard data, which covers monthly spend in the UK during the month of November, Shore Capital notes that consumer spending grew by 2.8% – below the 3.0% headline rate of inflation.
‘In terms of outlook, November’s muted spending figures reflect the cautious mood of the nation,’ Shore Capital wrote. ‘Only 30% of consumers feel confident about the UK economy, down from the 37% seen at the end of September. Interestingly, there is now a gap of 30% between those consumers who are confident and those who are not – this is the second-widest gap since Barclaycard started tracking consumer confidence in 2014.’
A Little Tougher
Summing up, Shore Capital suggests that Christmas 2017 will be ‘tougher’ for some segments of the retail trade, but not all that different to previous years, with ‘flattish’ sales expected.
Within grocery, in particular, it said that limited-assortment discounters are likely to gain further market share, while online grocery participation is also expected to rise, but ‘perhaps at a more sedate rate than in prior years’.
In spite of this, the group added, ‘We totally acknowledge the pressures that many store-based non-food retailers are facing into, and it is likely to be this space where we see the greatest volatility and so disappointment in the New Year trading updates, including, we sense, some further failures.’
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
