Big-ticket retailers rely heavily on Boxing Day and the January Sales, but this year the spectre of Brexit looms large.
Political uncertainty could not have come at a worse time for big-ticket retailers because roughly a third of sales of such items are made between Boxing Day and February.
The delay to the meaningful vote on Theresa May’s Brexit deal ensures uncertainty will remain until at least the rescheduled vote in the week beginning January 14.
Retailers of goods such as furniture, kitchen, flooring and bathroom products hoped to continue the momentum from an apparent bounce-back in sales in the autumn.
Peel Hunt retail analyst John Stevenson says hot weather over the summer created deferred demand for big-ticket items, which was satiated in the autumn.
“We saw big-ticket come back with a decent level of pent-up demand,” observes Stevenson. “It is not like people have not got the money and have not been willing to spend it.”
Recent trading figures from listed retailers and John Lewis provide a mixed picture of the market.
Topps Tiles’ like-for-like revenues for the 13 weeks to September increased 1.2%, while sofa specialist ScS’s like-for-like sales (excluding House of Fraser concessions) grew 4.5% for the 12 weeks ending October 20.
ScS chief executive David Knight says his company would be putting its “best foot forward” during the Boxing Day Sales period.
“The ScS part of the business has traded strongly through the autumn and we have some great teams and offers [in place],” says Knight.
“We are not planning for a major uptick in footfall through Boxing Day and January”
Mike Logue, Dreams
Others have been less bullish about trading prospects. DFS reported that its revenues (excluding those of recent acquisition Sofology) were down 2% for the 52 weeks to July 28.
However, DFS recorded like-for-like order growth across all brands over the first nine weeks of its new financial year.
At the time of the results presentation in October, then-DFS chief executive Ian Filby said results “reflected the exceptional downturn in market demand we saw in the fourth quarter”.
He expected the market to “remain subdued into 2019, constrained by political risk and weak consumer sentiment”.
Difficult trading period
Although big-ticket sales were resurgent in autumn, they appear to have taken a nosedive again in November based on John Lewis’ weekly sales figures.
John Lewis’ home sales fell every week in November, excluding the Black Friday week. Sales fell as much as 11.2% and 14.7%, coinciding with a sharp drop in consumer confidence.
GfK’s major purchase index – which tracks the likelihood of people buying big-ticket items – decreased seven points in November to -3, but bounced back in December despite overall consumer confidence falling to a five-year low.
Dreams chief executive Mike Logue believes lower consumer confidence “will impact Boxing Day onwards”.
“We are not planning for a major uptick in footfall through Boxing Day and January,” says Logue. “This year has been very difficult on footfall and we’ve had to be really good at converting footfall to generate any like-for-like growth at all.
“We are just doing the sensible things but not knee-jerking. We might just have to go through a difficult trading period which you can’t afford if you’re a plc but we are private so we can.”
“What businesses and consumers want is a bit of certainty and that is lacking currently”
Wilf Walsh, Carpetright
Carpetright chief executive Wilf Walsh expressed frustration with tough trading conditions brought about by the current political situation when speaking to Retail Week after the unveiling of the company’s half-year results earlier this month.
Walsh said at the time he had “no idea” what impact Brexit uncertainty would have on post-Christmas Sales.
“What we have got lined up is a pretty compelling promotion, which focuses on quality and value, which is what the consumers want,” said Walsh. “In terms of general mood music, it is really hard to tell what is going on. What businesses and consumers want is a bit of certainty and that is lacking currently.”
The logjam caused by May’s dithering over the meaningful vote on Brexit could prove the straw that broke the camel’s back.
“There are so many factors at the moment and it just makes things very tough,” says Stevenson. “The last thing retailers need is a level of political uncertainty on top of that. Coming into the New Year it is a risk, and retailers need certainty.”
Stevenson believes Brexit adds to a long list of challenges facing big-ticket retailers. At the top is the shift to online retailing, followed by issues about cost inflation and unseasonable weather.
The importance of online retail within big-ticket has been amplified by the overall decline of footfall at key Sales periods.
In 2017 shopper numbers on Boxing Day tumbled 4.5% compared to the previous year, according to data from footfall specialists Springboard.
“You now have got to have a relevant online offer to do well in the Boxing Day Sales,” says Stevenson.
He believes DFS and Topps Tiles are examples of how big-ticket retailers can have a strong online proposition.
The nature of big-ticket items means they are still predominantly bought in-store, but an increasing amount of research is carried out online.
“If you look at Topps Tiles, the level of online sales as a standalone is relatively small, yet most customers will go on to their website and use the visualiser tool,” says Stevenson. “It is a bit like shopping for a new car – people would make three or four visits to the showroom previously and now it is only one.”
It must be remembered that there is always the danger of overstating the doom and gloom surrounding the industry.
“If you go back even pre-financial crisis, the talk was always it was going to be the worst Christmas in 25 years. It became an absolute cliché and it never happened and was always fine,” says Stevenson.
However, it does certainly feel at present as if a perfect storm of factors is combining to create potentially ruinous conditions.
Stevenson warns there could be administrations of some privately owned big-ticket retailers if this period of uncertainty continues.
The damage being caused by the inertia stemming from Tory infighting, or jittery consumer behaviour, will start to emerge when the avalanche of new year trading updates gets underway.