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In retail, the Grinch goes by another name: Black Friday. But this time round, he stole Christmas all the same.
Superdry capped off a grim week for many UK retailers with a stark warning on Friday that its annual profits could be wiped out after disappointing festive trading. John Lewis and fashion chain Joules also warned on profits, while a roll call of other retailers, from Marks and Spencer to Morrisons, revealed disappointing sales declines.
Many cited the disruptive effect the US-inspired discounting jamboree has had on the traditional pattern of UK retailing, while the British Retail Consortium bemoaned the “worst year on record” for the sector.
Black Friday was on November 29 last year, a week later than in 2018, meaning it fell after that month’s payday for most consumers.
That created what J Sainsbury chief executive Mike Coupe called a “twin peaks” effect: Black Friday and Christmas. For many chains, the excruciatingly slow three weeks in between were characterised by ever deeper discounts aimed at luring shoppers.
Steve Rowe, M&S chief executive, said “unprecedented discounting between Black Friday and Christmas made December a very challenging month”.
Richard Lim, chief executive of Retail Economics, said that while most retailers reported a relatively strong Black Friday, “it meant that consumers simply pulled forward their purchases”.
Nowhere was the effect more pronounced than at Joules, whose shares shed almost 30 per cent before settling 21 per cent lower on Friday after it warned that profits would be significantly below earlier forecasts. A month ago, it said sales across October and November rose 9 per cent year on year. But in the seven weeks to January 5, that reversed to a 4.5 per cent decline.
Meanwhile Superdry, which is in the middle of a strategic transition, referred to “lower than anticipated retail sales since Black Friday”, dealing a blow to co-founder Julian Dunkerton, who returned as chief executive last year and had claimed to have “saved Christmas”.
The fashion retailer said underlying profit before tax was expected to be between zero and £10m for the year to the end of April, compared with forecasts from the company’s joint brokers of £30m to £33m.
“Black Friday was particularly strong as it was stretched out more this year and it was also closer to Christmas,” said Patrick Lewis, finance director at John Lewis Partnership. “Both of those had an effect on the balance of trade between Black Friday and Christmas.”
John Lewis’ department stores reported a 2 per cent slide in sales in the seven weeks to early January, against a 1 per cent increase in the same period a year ago. Paula Nickolds, head of department stores, is now leaving the group.
Black Friday’s disruptive effects do not end on Christmas Eve, either. Mr Lim pointed out that by the time the Boxing Day sales roll around, “discount fatigue has set in”.
Retailers use post-Christmas sales to clear inventory ahead of new ranges — in contrast to Black Friday sales, which are marketing promotions planned months ahead.
Another common theme was consumers’ reluctance to splash out. “The customer is cautious and recessionary in behaviour. Everyone can see it,” said Mr Rowe. The reticence is surprising, given that 2019 saw record employment and the first material growth in wages in several years.
It meant value-focused retailers did well; both Aldi and Lidl posted conspicuously strong growth against more pedestrian figures from traditional supermarkets.
But that was mostly driven by new store openings. The German duo never provide a same-store breakdown, but variety discounter B&M does. Stripping out new space trimmed growth of 8.8 per cent in the quarter ended December to just 0.3 per cent.
The opposite end of the price spectrum did even better. Selfridges said on Friday that sales rose 5 per cent while Fortnum & Mason, purveyor of £1,000 hampers, was up 15 per cent.
Richard Hyman, an independent retail consultant, pointed out that trading statements were unaudited, vary in definitions and timeframes and take little account of returns. He added that they told investors nothing about margins or profits, and cautioned against over-interpreting them.
But even allowing for such inconsistencies and company-specific issues, such as M&S’s overexposure to skinny jeans or the shortages of key items at Superdry and Joules, the picture in the middle market is downbeat.
Both M&S and John Lewis — considered bellwethers for middle England shoppers — reported disappointing sales declines in their non-food operations.
Mr Lim said that, aside from the likes of Next, the middle market was disproportionately populated by “incumbent or legacy retailers who have been around a long time, have a high street presence they no longer need and are struggling to reposition their businesses”.
At least some of that excess capacity will be removed over the course of 2020; Debenhams is closing 22 stores, while House of Fraser and Marks and Spencer will also shut more shops this year.
But few retailers are counting on a resurgence of confidence. “It is too soon to speak of improvement in the market for big-ticket items,” said John Lewis chairman Charlie Mayfield. “We are not expecting any favours from the trading environment at all.”
Consumer analyst Robert Carruthers pointed to Bank of England data showing Britons saved a net £4bn more than last year in November alone, and £25bn in the year to date. The March budget might loosen purse strings — or it might not.
And there’s still the Black Friday conundrum. “Retailers do not want to be discounting in the run-up to Christmas, a time when they should be selling at full price,” said Mr Lim.
“But the genie is out of the bottle. In electricals, toys and footwear in particular, they need to defend their market share against Amazon.”
This year, Black Friday will again fall late in the month, on November 27. That will make year-on-year comparisons easier, but it could also foretell another weak Christmas for retailers.
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