British retailers brace for cold Christmas

Christmas might not be so merry this year for British retailers.

It’s Black Friday: another capitalistic phenomenon Britain has adopted from the US.

I’m sure the country’s retailers have all marked the date on their calendars. And normally it would be considered a joyful occasion.

Black Friday tends to be an early peak for many shops in the Christmas holiday period. But this year, shopkeepers’ feelings towards the day might be more mixed.

That’s because Santa’s deep pockets don’t run as deep as in previous years.

Inflation has outpaced wages, household debt has been increasing, and with interest rates going up it’s getting more expensive to borrow.

If that wasn’t enough to depress the holiday mood, Chancellor Philip Hammond’s Budget must have done the trick.

Britain could suffer the longest fall in living standards since records began 60 years ago, if the Office for Budget Responsibility is to be believed.

Oof. Happy holidays everyone!

More than other years, high street retailers are meeting this day with anxiety.

Disappointing sales on Black Friday will be seen as a bad omen for the upcoming weeks.

We could see “a winner-take-all scenario during the crucial holiday season where stores that can’t attract shoppers could be forced to close,” BDO’s top retail expert Sophie Michael told CNN.

For some shops, Christmas might not be so merry this year.

Poisoned chalice

As soon as the Christmas lights are turned on in Britain’s high streets the holiday shopping season kicks off.

The ‘economics of Christmas’ is important. The very end of the year is a peak selling season for many retailers.

Struggling shops especially have a lot riding on the Christmas holidays. For them the period could be the difference between staying in and going out of business.

Why are many shops bracing for a difficult holiday season?

Well, Philip Hammond’s red briefcase didn’t exactly bring Britons a lot of good news. Economic growth forecasts proved too optimistic. Wages will stagnate, incomes will fall.

It doesn’t bode well for retailers that consumers are told hard times lie ahead a few days before they plan to do their Christmas shopping.

“Looking back, consumers were in a sweet spot in 2016 – low inflation and rising wages meant there was a little extra in household budgets to spend on the festive period,” says Visa’s chief commercial officer Mark Antipof.

“This year has seen a reversal of fortunes – with inflation outpacing wage growth and the recent interest rate rise leaving shoppers with less money in their pockets.”

It’s been a slow 2017 for shops with October seeing its weakest retail sales for four years. People saved on clothes and shoes in particular.

Retailers will naturally worry this trend extends to the busiest time of the year.

Some even argue that Black Friday is a poisoned chalice. That’s because holiday shopping has become more concentrated.

Rather than a period of weeks, a shop’s profit figures increasingly depend on just a few days during which it’s “make or break”.

“Black Friday is a colossal opportunity for British stores to squander their profitability,” writes Andrea Felsted in Bloomberg.

“They should have left the event on the shelf back in 2010. But it’s far too late now, and it shows no sign of going away.”

The most crucial time of the year

With inflation eating into people’s real wages and borrowing getting more expensive, more families could find themselves on a shoestring budget.

If that wasn’t enough, high street shops face fierce competition from online shopping giants like Amazon.

Where shopping in bricks-and-mortar shops is expected to go down, online shopping is set to pick up.

Online shopping will grow by 3.6% whereas spending at high street shops will fall by 2.1%, according to research conducted for Visa.

£2 of every £5 spent in November and December will be spent online. The uptick in online shopping won’t be enough to compensate for the drop in physical store spending, though.

So what does all of this mean for retailers and consumers?

The growing importance of e-commerce means the battlefield is shifting from the streets to the internet. That means retailers need to have their online plumbing in order.

Websites need to be able to handle the extra traffic or they’ll quickly lose customers to their rivals. Shops need to get it right if they want to turn a good last quarter.

Logistics will play a crucial role in the supply chain as well.

“If shoppers are going to return for more purchases closer to Christmas — and that’s a big if given the current caution — a bad experience over Black Friday will drive them elsewhere,” writes Felsted.

For consumers it could pay to hold off Christmas shopping until the last moment.

After the initial spike in spending on Black Friday, there could be a “cooling off” period with spending increasing again on the last days before Christmas.

In an effort to drive people to their stores, it’s not unlikely shops end up slashing their prices considerably if products aren’t leaving their shelves.

“If shoppers show signs of holding back between Black Friday and the days before Christmas, retailers could well resort to desperate measures: slashing price to stimulate footfall.”

Of course if you’ve ever seen the film Jingle All The Way in which Arnold Schwarzenegger leaves it late to buy his son an action figure, you’ll know that’s a risky strategy.

With people’s real wages squeezed, kids might already have to be happy with fewer gifts under the Christmas tree.

Better skip Harrods this year then.

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