What retail's strong Christmas tells us about the year ahead | WARC | The Feed

What retail's strong Christmas tells us about the year ahead

Major UK retailers are reporting results from their Christmas trading and despite worries over supply chains and the rise of the Omicron variant, the commercial news is good – it also illuminates some likely trends for the coming year.

Why it matters

Retailers doing well show the country is shopping: simple enough. When retailers post profits it suggests that the country is happy to pay prices asked; the formula is working, for now.

Across the world, demand is flooding back into the market after lockdowns, but supply remains constrained. Basic economics tells us that prices are going to rise. But markets are unfeeling things; it is the job of marketers to make those price increases (among other aspects) palatable to the British shopper. The task is about to get a lot harder as April brings in big tax rises alongside fast-increasing energy prices.

The picture

• Tesco sales up 0.2% year-on-year, defying analyst predictions of flat sales; full-year profits are forecast ahead of the £2.5-2.6 billion expected.
• Marks and Spencer (M&S) saw record sales, with quarterly sales up 18.4% on 2020 and up 8.6% on 2019.
• Sainsbury’s sales grew 0.1% year-on-year in the quarter to 1/1/22, with food and drink up 6.8% on 2019.
• Aldi sales were up 0.4% for December 2021 versus 2020, but up 8.1% versus 2019, with new stores helping to drive sales of alcohol and premium private-label items in the Christmas period.

Analysis

• It’s a tale of two radically different strategies. Tesco and Sainsbury’s, which have quite extensive online shopping and delivery infrastructure, are in a tussle for loyalty. Tesco’s Clubcard is bringing in custom and fuelling new brand-side products like its first-party media and insight platform.
• Tesco’s e-commerce sales grew 19% year-over-year, according to data from Edge by Ascential (which also owns WARC). This suggests e-commerce is less of a growth engine than table stakes.
• M&S, meanwhile, with a smaller physical footprint, has invested heavily in its e-commerce capabilities and has been able to build on food sales momentum with its resurgent home and clothing sales, with delivery scale getting goods to consumers.
• Aldi, meanwhile, defies the general trend. By eschewing digital sales and doubling down on physical, it cuts a lonely figure in British retail. While certain analysts call its results disappointing, it has kept up. But good times for Aldi can presage bad times for normal people.
• Chief Executive, Giles Hurley made mention of how higher costs of living would make the discounter’s proposition more attractive. “As we look ahead, the top priority for most families this year will be managing their household budgets in the face of rising living costs.”
• The year ahead has some precedent. One way of reading post-2008 retail history is that the incumbents’ short-sighted insistence on maintaining profits meant ceding ground to discounters like Aldi and Lidl, allowing them to become major mainstream players in UK retail.

The importance of delivering value

CEOs are talking a good game about mitigating any inflation-driven price rises, with some even pegging their prices to the discounters, but much of the task for the coming year will fall to the marketing department. At the bottom end of the market the question is how to make discounters even more attractive to erstwhile Tesco-shoppers. For the big retailers, the question is how to communicate that superior quality is worth shoppers’ hard-won pennies.

M&S CEO Steve Rowe used an interesting definition of value – a watchword for the year ahead – as “satisfaction minus price”. Satisfaction is in the mind of the beholder.

Sourced from The Guardian, FT, Edge, WARC Image by [Tara Clark on Unsplash]