As soon as retailers’ Christmas updates started coming in, it was clear that something unexpected had happened – the festive season had been better than anticipated for many

Despite the cost-of-living crisis and the higher price of doing business, as well as the war in Ukraine and political upheaval at home hitting shopper sentiment, many retailers exceeded downbeat expectations to post strong trading and even profit upgrades.

Here we unpick what contributed to a Christmas far happier for retail than anticipated, from consumers’ determination to enjoy the holiday after years of disruption to retailers’ ability to up their game by delivering value for money or omnichannel prowess.

Festive cheer – at last

The Christmas just gone was the first since 2019 that was free from either coronavirus restrictions or the emergence of a new Covid-19 variant and, despite sombre forecasts about the cost-of-living crisis, customers were up for much-missed celebrations after some tough times. 

“Customers wanted to really treat themselves and they wanted to celebrate at home together”

Simon Roberts, Sainsbury’s

“Of course, customers were watching how they spent every penny and pound,” said Sainsbury’s chief executive Simon Roberts. “But what’s really clear to us is that customers went all out for the big Christmas dinner this year after two years of less-than-normal Christmases.

“Customers wanted to really treat themselves and they wanted to celebrate at home together.”

Lidl Christmas Turkey

Lidl attracted 1.3 million new food customers 

People celebrated across categories and price points as well. In food, while more than 1.3 million new customers shopped at Lidl for food to save money, M&S also reported its highest-ever Christmas sales of £80m on December 23 as shoppers also sought to treat themselves after a tough year. 

Gifting also performed strongly. Argos proved to be the standout for Sainsbury’s, driving strong sales across must-have lines such as air fryers.

Poundland, too, reported seven of its busiest-ever days during the period as customers flocked to buy more novelty £1 gifts and chocolates for friends and family.  

Tesco boss Ken Murphy noted that much of retail’s Christmas success may have come at the expense of pubs and restaurants as customers sought to save money over the period by entertaining at home. 

Marks & Spencer chief executive Stuart Machin said customers had looked forward to enjoying Christmas at home: “All our own insight told us customers wanted to celebrate and we saw that in both sides of the business.”

Considered purchasing: value and treats

Amid the cost-of-living crisis, value was a huge motivator during the period when it came to grocery shopping – but not at the expense of quality. 

Lidl’s Christmas sales rose 24.5% year on year. Chief executive Ryan McDonnell noted: “We know they switch to us to make savings but they stay with us when they realise that they’re not having to compromise on quality – and this Christmas was no exception.”

Tesco and Sainsbury’s also reaped the benefits of investing heavily in value own-brand ranges and their respective Aldi Price Match schemes, with Christmas food sales up 7.8% and 7.1% respectively.

M&S locked down the prices of many staple items and its ‘Remarksable Value’ range proved popular – up 27%.

However, shoppers were also keen to treat themselves and the fight for consumer spend on premium own-brand products was just as fierce as it was on more value ranges.

“Our customers have been more intentional in their spend during the period, buying what they need or what they love”

N Brown

Sales of M&S Collection premier-tier products were up 20%, while Tesco Finest was up 8.2% and Sainsbury’s Taste the Difference was up 10%. 

The same pattern played out in other categories such as fashion. Home shopping group N Brown said: “Our customers have been more intentional in their spend during the period, buying what they need or what they love, with a greater focus towards either the value or premium end of our ranges.”

Pureplay Very invested in lower prices over Christmas, said its chief executive Lionel Desclée. While that may have affected the top-line growth number, it delivered on the needs of Very’s customers and drove a market share gain.

Keeping down the cost of living was evident in demand for air fryers, for instance, which Very sold at the rate of one per minute.

Retailers’ ability to ensure keen prices as well as provide quality treats came into its own over a Christmas period when shoppers made considered purchases from a value-for-money perspective.

Retailers’ hard work pays off

Retailers pulled out all the stops to make sure they were as well prepared as possible to make the most of this golden quarter.

A key area of focus for improvement was availability. International supply chain issues played havoc for retailers across categories during the pandemic and huge strides were made in 2022 to address that issue. 

“We’ve had our best Christmas from the supply chain point of view for many years”

Ken Murphy, Tesco

In food, concerns heading into Christmas over a supposed lack of turkeys and poultry due to avian flu proved needless, with grocers and suppliers coming together to ensure the festive staples were in good supply. 

“We’ve had our best Christmas from the supply chain point of view for many years. We planned for a good Christmas and we delivered a good Christmas,” said Tesco’s Murphy.

“We had party foods, turkeys and fresh vegetables available right up to Christmas Eve so that no one would be left disappointed.” 

Tesco lorry

Supply chain concerns went unfounded for retailers like Tesco

Marked availability improvements were also made in general merchandise. Roberts put Argos’ turnaround this Christmas down to a better supply chain. 

New product innovation was also key to Christmas success as retailers worked overtime to give customers new and exciting offerings at varying price points. Sainsbury’s alone launched more than 300 new products this Christmas. 

M&S’ Machin pointed to the retailer’s reputation for innovation and quality as a strong contributor to its Christmas success. This included products such as slow-cooked turkey – a new line that generated sales of £1m in its first year – while, in clothing, innovations such as its Stay New technology enhanced value.

Machin said what he described as “outperformance” was “driven by M&S doing what it does best – exceptional product at value you can trust”.

Omnichannel won over delivery disruption

The festive season also brought confirmation that shoppers’ return to physical stores is well on its way.

According to the BRC-Sensormatic IQ Footfall Monitor, overall footfall was up 15.1% over Christmas, with high streets up 19.7%. 

As a result, retailers with plenty of bricks-and-mortar locations generally performed well over the period, but they benefited from more than just the passing trade.

When shoppers lost confidence that their online deliveries would arrive on time between strikes and disruption, click and collect was a key appeal for retailers with stores, while their absence cost online pureplays valuable sales. 

“Cutting three days of deliveries in a period as important as Christmas has an impact on sales for sure” 

José Antonio Ramos Calamonte, Asos 

When Asos was unable to guarantee that parcels would be delivered in time for Christmas, it shortened its order cut-off date.

“Cutting three days of deliveries in a period as important as Christmas has an impact on sales for sure,” said Asos chief executive José Antonio Ramos Calamonte. 

“It’s hard to quantify, but the lack of confidence from consumers receiving their parcels in spite of whatever efforts we make – certainly the online market was impacted and I’m assuming that propositions like click and collect were less so.” 

Very’s Desclée conceded that strikes probably prompted consumers to “play it safe and that potentially benefited bricks and mortar” but he was confident in the longer-term ecommerce prospects.

Where online faltered, omnichannel players like Argos were there to pick up the slack. 

“We saw customers really rely on our Fast Track and click-and-collect services during the period when they couldn’t rely on the postal service during Christmas,” said Roberts. 

M&S felt the benefits of omnichannel, too. Clothing and home store sales increased 12.8% in-store and there was a 20% rise in click-and-collect orders, while online inched up 0.7%. 

Inflation up, volumes down

Rampant inflation had a double-edged effect on Christmas trading, driving revenues up by value as customers paid more for items but pushing volumes down elsewhere. 

Kantar grocery market share data for the period covering Christmas showed that inflation drove up customer spend by £1.1bn but pushed basket volumes down by 1%. 

Machin said M&S’ volumes were up in clothing and home over the festive period and that food volumes rose in the month of December.

Very’s Desclée acknowledged that sales had lagged inflation but said the etailer delivered volume growth in some categories and that sales by value also reflected investment in price.

He added that the retailer’s market share growth in the period was a key indicator of performance from his point of view. 

Despite the boost to the top line that some retailers experienced due to inflation over the festive period, most are just as desperate as customers to see the figure come down. 

“My biggest wish for this year is that inflation comes down as soon as it can. It’s impacting millions of households,” said Sainsbury’s Roberts. 

“It’s impacting every business. Let’s hope inflation will come down, certainly by the middle point of the year.” 

Cold snap gave fashion a winter warmer 

Though it may be a stretch to describe December’s bitterly cold weather as welcome, some retailers have given it credit for a clothing sales boost.

Roberts said the plummeting temperatures across the UK towards the end of the year – which reached -15°C in some areas – benefited knitwear and loungewear lines as shoppers tried to stay warm at home.

Primark – which has yet to update – reported strong sales of fluffy pyjamas and thermals, as did Next, which increased its profit guidance after the weather provided a “dramatic boost” that released pent-up demand.

M&S said it sold 17,582 ‘duvet’ coats and cold thermals were up 62%.

However, N Brown said the changeable weather pushed demand for outerwear much later into the season than usual, impacting sales.

While retailers can be in thrall to the weather, many were nevertheless able to respond quickly to demand – a testament to their ability to cater for seasonal customer needs, whether that was snowstorms or parties.

Black Friday and World Cup halo

world cup trophy

Black Friday’s proximity to the winter World Cup created a halo effect

Promotions were in high demand this festive season and Black Friday delivered handsomely on both accounts for some.

Boots recorded its biggest Black Friday ever, taking over three orders per second for 14 hours straight online, while Dunelm, Shein and Schuh all recorded website traffic increases of more than 10% year on year.  

In addition, the promotional weekend’s proximity to the winter World Cup created a halo effect that carried excitement into Christmas.

Roberts said Argos’ Black Friday campaign, which drove 15,000 orders per hour on the day itself, flowed through to bumper technology sales ahead of kick-off, which he said held through to Christmas.  

Consumers turned to credit but budgeted cash

The latest consumer credit data from the Bank of England, for the month of November last year, showed that card borrowing was at its highest level in almost two decades.

People put an additional £1.2bn on cards as they headed into Christmas while confronting higher prices for essential goods and energy.

Credit reference agency Equifax reported that the use of buy now, pay later schemes, such as Klarna, reached a record high as Christmas approached.

Desclée said that Very’s financing business had performed well overall, among both existing and new customers.

However, last year, consumers also withdrew cash at a rate not seen since 2004, according to Nationwide. The building society said this week that more than 30 million withdrawals were made at its ATMs in 2022 – up 19% year on year. 

The high level for both points to consumer difficulties in managing the rising cost of living and attempts to budget effectively. At Christmas, however, customers were keen to enjoy the return of socialising and splash out on an enjoyable time.

Light at end of tunnel in 2023

After an encouraging Christmas, attention now turns to the remainder of a year that still holds challenges aplenty. As Machin said, “uncertainty is the new normal”.

He is now focused on making the most of upcoming red-letter days, such as Valentine’s Day and Mother’s Day, as well as Easter.

“We haven’t changed our guidance for the year. Customers are cautious but we’re not seeing anything changing too much”

Stuart Machin, M&S

He said: “Our customers are telling us there are still lots of things they’re planning. That should be good for us because we’re pretty strong on events.

“We haven’t changed our guidance for the year. Customers are cautious but we’re not seeing anything changing too much.”

Machin also said M&S is strong in categories such as schoolwear, which are less discretionary. 

If retailers can handle the year ahead with the aplomb with which they handled the uncertainty of Christmas 2022, then they can look forward with cautious confidence to a time when pressures such as inflation may well pass their peak and conditions gradually improve.

Like Next’s Lord Wolfson, many will dare to hope there is “light at the end of the tunnel”.

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