A last-minute shopping rush will save retailers from a Christmas wipeout, but many are resigned to muted sales growth during the golden month of December.
Store chiefs expect aggressive promotions and discounting to drive sales, but many will take a hit on margin and there will be polarisation between the weak and the strong.
The chief executive of one fashion retailer said: “The season as a whole has been difficult and footfall has been tricky, but I think Christmas will be okay. People didn’t buy in early December, so we have taken a view that they will shop this weekend.”
Estimates for Christmas comparable store sales growth range from 3 per cent from the BRC to flat from broker JP Morgan.
Although down year on year, shopper numbers climbed almost 7 per cent week on week between December 10 and 16, traffic monitor FootFall reported.
However, levels of discounting are higher than last year, a survey by Ernst & Young found. Discount levels so far have averaged 36 per cent, compared with 35 per cent in 2006, and markdowns of as much as 80 per cent have been offered. Fashion and entertainment retailers have been among the most aggressive discounters.
Upscale and value retailers are both expected to do well over Christmas. John Lewis managing director Andy Street said: “Although trading conditions are tougher this year, customers have responded to our assortment as well as the personal service our partners aspire to give. This has rewarded us with two record-breaking weeks and this week is also proving busy.”
At the other end of the spectrum, frozen food specialist Iceland was also bullish, as consumers unnerved by falling house prices and an income squeeze respond to its low-price offer. Chief executive Malcolm Walker said: “We are a value business – if you cannot afford to shop at Tesco, you shop with us.”
However, fashion chief executives were more bearish. One said: “We have already seen profit warnings and I think there will be others. People rely on Christmas to boost sales, but footfall is down and online is taking more spend – that hasn’t been budgeted for.”
Another said: “Almost all fashion retailers have gone on Sale earlier. There’s a fight for shoppers and the price-slashing means some won’t make a profit.”
Attention is already turning to 2008, when harsh trading conditions are expected to persist. JP Morgan analyst Simon Irwin said: “We don’t see Christmas being a disaster, but do think it will deteriorate significantly in the new year.”
Hard-pressed furniture groups are preparing for a savage showdown in January. DFS chief executive Lord Kirkham said: “The market will get worse next year; this is not just a hiccup. If companies had a good Sale last year, they should be pleased to equal it this year.”
Land of Leather is expecting the biggest Boxing Day and January sales in its 10-year history as difficult conditions prompt retailers to slash prices. Director Clive Hatchard said: “The January Sales will be a battlefield, which is bad news for retailer margins, but great news for consumers.”
WHAT STORE CHIEFS SAY
“Every year, there are winners and losers at Christmas. We are confident we are taking market share.”
Andy Street, managing director John Lewis
“I don’t think it will be a vintage Christmas. Next year, customers will have to be inspired by good product.”
Derek Lovelock, chief executive Mosaic
“Our like-for-like sales are up on last year. If there is a bit of a recession, it will do us well.”
Malcolm Walker, chief executive Iceland
“Like-for-likes are in positive territory. We’ve had a very strong year and it’s continuing through to Christmas.”
Nick Mather, chief executive Hamleys
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