Improved Christmas trading, but at what cost?

The High Street has enjoyed a better-than-expected sales period over the festive season, largely due to some hefty discounting, but the true cost of Christmas will not be known until retailers report on profits later this year, according to retail experts at PwC.

Following some positive trading reports from a number of High Street retailers, the British Retail Consortium has revealed this week that like-for-like sales among UK retailers were 2.2% up on Christmas 2010, when sales fell 0.3%, hit by snow and ice.

According to PwC, one of the main reasons for the better-than-expected Christmas trading season is the widespread use of discounting activity during December, which is likely to have cut deeply into profit margins. Research carried out by PwC among 100 High Street retailers in the week before Christmas showed that over half (54%) were advertising sales or promotions in their shop window and average discounts were 39%, a significant rise compared to the same week in the previous year.

Andy Lyon, retail expert and partner at PwC in the Midlands, said:

“There is no doubt that shoppers in Milton Keynes and the South Midlands have been digging deep to pick up the goods they want both before and after Christmas and some attention-grabbing discounts have certainly helped to drive spending.

“With like-for-like sales up 2.2% on Christmas 2010, according to the latest figures from the British Retail Consortium, many High Street retailers will be relieved that they have managed to shift stocks and convert them into cash at a critical time in the retail calendar.

“However, the true cost of Christmas for Milton Keynes and South Midlands retailers is not yet known and we will have to wait for profit reports later this year to see what impact discounting activity has had on margins and some retailers may find that they have slipped into negative territory.”

The post-Christmas period is a particularly testing time for retailers – a time when those that have failed to achieve their target sales figures are forced to make cuts or risk defaulting on rent payments. According to PwC, the fall-out from this year’s festive trading season may not yet be complete.

Andy Lyon commented:

“There are always winners and losers at this time of year. The winners are those that have succeeded in driving sales by strengthening their online presence – an area of the market that is still reporting high growth.  In particular, those using mobile phone apps to draw in consumers and drive sales are well-placed to take advantage of a shift in shopping behaviour.

“The losers, on the other hand, will be those that have failed to adapt to these new shopping behaviours.”

Contact details
Email: Andy Lyon
Tel: +44 (0)1509 604114