Who had a Merry Christmas in UK retail?

At the end of a turbulent 2016 it is satisfying to say that UK retail had a merry Christmas. However, in light of a weakening pound and unpredictable consumer confidence, leaders warn that the new year will bring challenges.

Grocery

The golden quarter proved to be strong for our grocers. High margin clothing aided growth, own brand products made it onto many Christmas dinner plates and the nation’s penchant for prosecco continued.

Morrisons and Waitrose in particular had bumper Christmases, recording 2.9% and 2.8% growth in like-for-like sales respectively. This was Morrisons’ best result in seven years, attributed in part to the success of their own label premium range “The Best”. They also benefitted from sales of clothing, a trend which was also seen at Sainsbury’s and Tesco, where F&F clothing sales increased 4%. Waitrose said sales were boosted by their Waitrose 1 premium range and one-day promotions on “staples” like champagne and crackers.

Tesco and Sainsbury’s were not as successful, but both showed steady growth and took analysts by surprise. Tesco like-for-like sales increased 0.7%, with Dave Lewis putting this in part down to better ranges, to include own brand party food. Sainsbury’s modest growth of 0.1%, while Argos sales increased by 4%. Mike Coupe said this “reinforced the case” for acquiring the general merchandise retailer.

Aldi and Lidl impressed, reporting increased sales of 15% and 10% respectively. They did not report on like-for-like sales, but stated these were good. Both dabbled in premium products, with strong sales in prosecco and party food. Lidl’s prosecco sales doubled and Aldi sold two million bottles in December. Indeed, Sainsbury’s named 23rd December “fizz Friday” as they expected to sell 0.5 million bottles on that day alone.

Department stores

2016 showed that shoppers still value the festive buzz of the department store. Following the demise of BHS, our remaining high street stalwarts had a lot to play for.

John Lewis and House of Fraser both reported an increase in like-for-like sales of 2.7%, with John Lewis highlighting the success of their own brand fashion range. House of Fraser put their success down to a strong multichannel proposition, with strong online demand and a good performance from their refurbished stores. Despite the positive numbers, Charlie Mayfield has warned that trading margin is under threat as the effects of a weaker pound take hold.

Fashion

Most fashion retailers who have reported so far have met or exceeded expectations. The biggest headline was probably M&S, where like-for-like clothing sales increased 2.3%, the retailer’s best Christmas in six years. Steve Rowe put the success down to “better ranges, better availability and better prices”.

Other success stories came from etailers and high end retailers. Asos UK sales were up 18%, leading the company to increase its full year sales expectations by 25 to 30%. Joules recorded a rise in sales of 22.8% and Jigsaw’s sales increased by 10% as the retailer maintained its full price offer.

In the middle of the market, Next had a very different Christmas. Sales fell 0.4% leading the retailer to warn of lower than expected profits this year. Verdict suggest Next is failing to understand its market, falling into the trap that M&S appear to be breaking out from. Lord Wolfson has warned that 2017 could be a difficult year as shoppers stop buying clothing and the impact of the weaker pound starts to bite.

In sum, retailers are right to be proud of their Christmas performance. However, there is caution in the air as retailers face continued pressures, including slower economic growth and a potential reduction in demand, and rising costs due to the weaker pound and policies such as the national living wage.