Profit warnings are coming in thick and fast, consumer confidence is falling and most store groups are only increasing sales by hefty discounting.
There will be little Christmas cheer for many retailers this month. The grocery sector appears to be the only sector bucking the gloomy trend.
This week, Tesco posted another credit crunch-defying set of figures. Its UK like-for-like sales climbed 4.1 per cent, excluding petrol, for the 13 weeks to November 24, following strong performances posted by Sainsbury’s and Morrisons last month.
Sainsbury’s and Morrisons’ continue to report strong sales partly because food is one of the last areas that consumers cut back on. While trips to shopping centres, restaurants and holidays become less frequent, few consumers cut back substantially on their weekly food shop.
Waitrose managing director Mark Price’s mantra is that when customers start cutting back on their visits to restaurants, Waitrose often sees an increase in food spend in its stores.
Another advantage the grocers have in the run-up to Christmas is their extended opening hours, compared with other retailers, such as fashion and furniture players. This week, Asda revealed that it will open 200 of its larger stores from 12.01am on Christmas Eve – the first time it has done this when Christmas Eve has fallen on a Monday.
And Sainsbury’s said it will have 33 supermarkets open 24 hours in the week before Christmas. It will also open 30 of its convenience stores on Christmas day, including 15 stores that will open for 24 hours for any last-minute purchases, such as turkeys.
In fact, Deutsche Bank analysts forecast that volume growth in the grocery sector would improve if inflation levels were to subside. In a research note, Deutsche Bank said: “Far from being sky-high and ready to fall, industry volume growth is significantly below the long-run average, largely, we believe, due to high levels of inflation compressing consumers with budgets.”
One of Deutsche Bank’s main concerns about growth in the sector centres on increased competition from the big four, as well as Marks & Spencer’s food business, more than doubling their floor space next year. It forecasts that the food sector will increase its space by 4.5 per cent next year, compared with 2.1 per cent this year.
Overall, the grocers are unlikely to register runaway growth next year and they could see a slight fall on this year’s figures. England’s absence from the European football championship and the continuing squeeze on consumer incomes will hinder the big grocers’ progress next year. But, compared with other retail sectors, the grocers will probably find the season of goodwill being extended well into the new year.