As retailers released their December trading statements earlier this month, we saw that as a whole, retail sales increased but shoppers are continuing to be cautious in their spending. Despite consumer confidence increasing in the months running up to Christmas, the fact remained that, with inflation outstripping the pace of wage growth in 2013, shoppers had – and continue to have, less disposable income to spend. They are now an army of sophisticated shoppers in their approach – investing primarily where they perceive genuine value, and waiting for retailers with a track record of discounting to put up the red tickets.
Within this challenging trading environment, we have seen significant polarisation in performance. Retailers like Next and John Lewis, with their clear promotional strategies, strong product and leading multi-channel offers performed well. Likewise specialists with desirable ranges, distinct positioning and excellent customer service (including Kurt Geiger, The Fragrance Shop and Ted Baker), reported robust trading. In general merchandise it was large players M&S and Debenhams that failed to deliver – both of whom aggressively discounted before Christmas. The result - a move which seemly failed to deliver necessary volume uplifts, suggested areas of weakness in ranges and possibly fragmented spending among shoppers to a wider selection of more specialist retailers.
The most alarming of this year’s results came from the biggest food retailers. Sainsbury’s reported marginal (0.2 percent) like-for-like growth, and Tesco and Morrisons saw their same store sales fall by 2.4 percent and 5.6 percent respectively. In part this could be attributed to a flat market performance, but the big four have also needed to contend with growing competition at both the top and bottom ends of the market. Discounters Aldi and Lidl continued to storm ahead, benefiting from growing store numbers and improving shopper perceptions. At the other end of the spectrum Waitrose and, to some extent, M&S Food enjoyed uplifts as many shoppers traded up for their main Christmas shop.
With the Christmas 2013 advertising campaigns taking on a more aspirational stance than in 2012, the suggested air of cautious optimism fell flat when many retailers to failed to hold their nerve and took to discounting earlier than usual. It’s a rocky tactic to employ as it has the potential to “re-set” shoppers mind-set about when to make a purchase – whether to hang on a bit longer for the early discount and hold off buying presents. It’s something retailers need to consider carefully as shoppers will remember their strategies for next December. It can be a toxic profit-eroding cycle for those retailers involved.
Multichannel was another major theme at Christmas with official figures showing a strong rise in the proportion of Christmas sales made over the internet, while retailers across the board have reported sharp uplifts. The proliferation of click and collect services, improved retailer websites and growing shopper use of smartphones and tablets all helped boost online sales. The convenience offered by multichannel also fuelled growth. Crucially it was the retailers that delivered the most seamless multichannel offer that performed best.
Social media played an increasingly important role this year. Growing activity on Facebook, Twitter, YouTube and Pinterest provided inspiration and ideas, and directed shoppers to stores and transactional websites. Notably we saw a maturity of social media this year, with activity more closely aligned and integrated with broader marketing strategies and less focused on PR generating gimmicks. Activity via social media was also closely linked with TV advertising and use of twitter hashtags and previews of adverts on YouTube had retailers such as John Lewis and Sainsbury’s seeing their ads go viral and trending across social networks.
So who were the winners at Christmas and what to expect for the year ahead? In our opinion it was the shoppers who came out on top in December rather than the retailers! The savvy shoppers benefitted from looking around, researching online to find the best bargains and sharing money saving tips between friends using social media.
In terms of what’s coming in 2014 – it’s going to be another challenging year we think. Our research indicates that just 28 percent of shoppers feel more optimistic about the economy in 2014, compared to 2013 (in perspective, when asked the same question in November 2012, 38 percent were more optimistic). There are two reasons in particular which underpin the apparent disparity between this finding and the improving economic picture.
Firstly, the road to recovery is neither geographically nor, to a lesser extent, demographically balanced. Regional analysis of our research shows that shoppers who live in London and the south east are more likely to be optimistic than those living in the rest of the UK. The data also suggest younger shoppers (the group that have been worst affected by the downturn) are more optimistic than their older counterparts. Secondly, improving confidence and rising overall expenditure is not benefiting all sectors equally. High ticket sectors such as new cars and home improvements are doing well, fuelled in large part by rising consumer debt. Seemingly more positive economic news is giving shoppers a feeling of greater job security and, as result, in their willingness to take out loans.
However, rising confidence is not translating into spending on lower ticket items – with sectors like food and grocery under particular pressure. Crucially inflation has continued to outstrip wage growth, so shoppers feel – and indeed are – less well off in real terms. We know ultimately that shoppers judge their day-to-day expenditure on the contents of their purses, not what they hear on the news, and so they are cutting back where they can. As such, this year we expect to see retailers employing more use of coupons, increasing own label penetration and trying to better accommodate customers who are shopping around between grocers – to counter marketshare advances among discounters.
In short, we expect to see limited growth in the overall food and grocery sector in 2014 and everyone will have to work hard to fight for their share of what growth there is – especially with discounters continuing to bolster their estates with new store openings. A tough road indeed ahead, but with a good understanding of where shoppers are coming from, some great inspirational ideas and a robust strategy for execution and you’ll be in a good position to do well.