With another golden quarter over, Retail Week unpicks the key trends surrounding Christmas 2023 and looks at what they might mean for the year ahead 

While food retailers across the price spectrum reported record festive feasts, the overall picture emerging from the Christmas trading season has been more complicated.

As we reach the end of the welter of Christmas trading updates that always marks January, grocery appears to have enjoyed almost universal festive cheer. For the wider sector, though, hopes for it being “alright on the night” have faded.

While this Christmas gone wasn’t an unmitigated disaster, it proved as tough as many feared it might be. The best retailers in each category may have succeeded, but fashion and luxury in particular appear to have struggled, and historically strong seasonal areas such as gifting and toys appeared to fall foul of the cost-of-living crisis.

So, what themes have emerged throughout Christmas trading updates? And what do they tell us about how 2024 could play out for retail?

Volume gains characterise winners

Retailers that did well over Christmas typically reported volume as well as sales increases and that trend is likely to characterise ongoing winners.

Marks & Spencer, Sainsbury’s and Tesco were among those to notch up volume rises – testament to their ability to provide value for money alongside a quality offer that helps draw spend on affordable treats.

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Tesco notched up volume as well as sales increases

They look well placed to capitalise on such strengths, building market share as weaker rivals lose volume – perhaps permanently – to their more powerful propositions.

Volume increases were not necessarily reflected in earnings upgrades, although Tesco did up its guidance. However, they indicated strong shopper appeal and will enable retailers to gauge that critical factor in the coming year when it looks as if conditions will continue to be challenging.

As M&S chief executive Stuart Machin told Retail Week: “Our job is to get the right product that resonates so customers buy more.”

Cost pressures cloud prospects

As the cost-of-living crisis dominated headlines in 2023, both consumers and retailers continued to face the pressure in the run-up to Christmas.

Fashion retailer Quiz, for example, reported an 11% decline in sales year on year for December 2023, which it attributed to the “negative impact of inflationary pressures”.

Even retailers who unveiled impressive seasonal performances almost universally flagged concern about higher costs in the year to come.

The industry faces a double whammy in the next few months as increases in business rates and the minimum wage pile on further pressure. In such circumstances, keen cost control, efficiency and productivity will be more essential than ever.

Sofa giant DFS, for instance, reported gross sales down 5.6% over 26 weeks but anticipates interim profits will be slightly up year on year. Chief executive Tim Stacey attributed that to factors including lowering the cost base.

And Currys chief executive Alex Baldock flagged that “robust profits” at the core UK and Ireland business were partly attributable to “continued cost savings”.

Baldock, who is also confronting cost rises specific to his business as a result of changes to recycling rules said: “I think, speaking for retail, the biggest inflationary pressures are coming from the government with the ill-judged proposed rates hikes and the ill-judged recycling proposals, both of which will be counterproductive and will fuel inflation at the same time as reducing jobs and investment in the UK’s largest private-sector employer.”

However, with inflation predicted to fall in the next 12 months, retailers have high hopes as consumer spending improves with rising purchasing power.

This is mirrored in the latest consumer confidence index, which rose to its best score since January 2022 as optimism about the current economic situation strengthened.

Own-brand ranges lead the way

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Retailer beauty ranges such as No7 outperformed in a historically brand-led space

Own-brand ranges took centre stage this Christmas and played an instrumental role in driving growth for retailers across categories including food, clothing and beauty.

Supermarkets including Tesco and Sainsbury’s noted the contribution of own-brand premium food ranges in their recent Christmas results as consumers opted for competitively priced, own-brand products that were on par with branded offerings in terms of quality.

In the beauty category, budget own-brand ranges outperformed in a space that has historically been brand-led. Boots’ No7 and Superdrug’s Studio London became the highest-performing ranges at the high street giants as consumers turned to pocket-friendly options in a saturated market.

While the initial shift to own-brand items may have been a direct consequence of skyrocketing prices and rising inflation, the category has carved a new space for itself across sectors.

Even as inflation finally inches down, much to the respite of cash-strapped consumers, value remains a big focus, giving own-brand ranges enough headroom for growth as we head into 2024.

Price wars

Before we even had a chance to take the decorations down, retailers went knives out on prices.

The start of January saw Ikea, Matalan and Asda join a growing list of retailers to launch new price-cutting campaigns, with the latter targeting Lidl and Aldi together in a UK first for the grocers.

Sainsbury’s doubled down on its Aldi Price Match, too, expanding it into what it now describes as its “biggest-ever” offering, covering 550 products, while M&S unveiled another spate of cuts, taking its lower-cost total to 200 items.

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Sainsbury’s has doubled down on its Aldi Price Match initiative 

In clothing, Next and M&S bosses Lord Wolfson and Machin both said they did not expect price increases in the coming year.

This will all come as welcome news to hard-pressed shoppers struggling with the cost of living. However, because many have had no choice but to scour for the best deals in the last couple of years, they are likely to maintain that mindset even as inflation eases.

Keeping prices high is going to do little to drum up footfall, so it’s likely we have entered yet another year of fierce price wars and tense competition.

Online vs stores

Popularity between online and offline retailers constantly shifts, with one usually reigning supreme over the other, but it was hard to tell who won Christmas 2023.

In the run-up to Christmas, bricks-and-mortar retailers saw a boost in shoppers, with MRI Software data showing that shopping centre footfall increased by 11.1% in December.

Online retailers, meanwhile, saw a significant rise in sales the week before Christmas, according to the British Retail Consortium, mainly driven by “last-minute shopping”.

A pattern seen for both stores and online over the golden quarter was that shopping started earlier this year, partly driven by consumers needing to spread the cost.

McKinsey & Company senior partner Anita Balchandani said: “We’re seeing the boundaries between Black Friday and Christmas blur. We’re also seeing people use Black Friday as a big chance to get deals that they can use to fund part of their Christmas shopping.”

Retailers such as John Lewis and The Entertainer brought their Black Friday deals forward to cater to cash-strapped shoppers, which could become a growing trend in the next few years.

While online remains popular for last-minute shopping and discounts, the growing diversity in retail locations, new flagship openings and store expansions looks set to continue into 2024.

A little less luxe

With luxury brands Mulberry, Burberry and Watches of Switzerland posting plummeting sales over Christmas and more premium fashion retailers such as Levi’s and Superdry also struggling, other categories seem to be stealing this spend.

Watches of Switzerland said the “challenging” conditions seen over Christmas are likely to remain for the rest of the year, offering a rather bleak outlook for its sector.

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London Designer Outlet posted a record-breaking golden quarter performance

Despite this, both Outlet Shopping at The O2 and Wembley’s London Designer Outlet posted record-breaking performances over the golden quarter, while the McArthurGlen Designer Outlets group posted sales of more than £1bn for the first time.

With a variety of premium brands on offer at more accessible price points, it comes as no surprise that outlets are thriving as they allow consumers to treat themselves and buy quality products without breaking the bank.

As leasing director for Outlet Shopping at The O2 Louisa Dalgleish points out, these destinations are likely to build on their success to date and should remain confident about reaching new heights in 2024.

With Superdry posting another profit warning, Primark noting a “slow start” to Christmas trading as a result of the weather and Boohoo not commenting any further than saying it is trading “in line with market expectations”, the growing concerns for fashion more broadly show no signs of slowing down any time soon.

Home improvements

Broadly speaking, peak season for the home improvement sector was not a roaring success, but it has not been catastrophic either.

Warm weather meant footfall was down in the autumn, causing headaches for some big-ticket retailers, but several furniture specialists reported that sales were good, if maybe a little subdued.

Retailers with high proportions of decor and accessories benefited from consumer caution as shoppers opted to make smaller, affordable improvements to their living spaces.

Dunelm is a prime example of this, posting 1% growth against a 17.6% comparable, while premium retailers like Cotswold Company saw a move away from “throwaway” furniture to investment pieces, posting a 13% rise.

If a warmer start to winter tempered spending towards the end of 2023, the cold and bitter start to the new year delivered a rise in demand just in time for the January Sales.

Sofa-in-a-box retailer Swyft recorded 95% growth so far in January, while a national kitchens specialist told Retail Week its Boxing Day Sale had also been strong.

The consensus is that consumers are still particularly interested in getting a bargain, so retailers that scrimped on their New Year discounts may have found this month harder than those who splurged with Sales.

Proceeding with caution

Since the pandemic wreaked havoc on the economy nearly four years ago, consumer sentiment has been consistently low.

Ahead of Christmas, PwC’s survey showed consumer sentiment standing at -13, with 30% saying they would spend less on Christmas shopping due to the cost-of-living crisis.

Tighter budgets and rising costs meant shoppers spent less on non-essential items, which was reflected in Christmas trading results as retailers including Currys, Naked Wines, The Works, Mulberry and Topps Tiles were among those reporting a decline in sales.

The new year sees a new rise in the National Living Wage, a cut to National Insurance and inflation set to fall, but this does not necessarily mean the consumer will stop being cautious. Economic uncertainty, the cost of living and rising mortgage rates still plague the UK.

However, the retail sector is largely hopeful, with Tesco boss Ken Murphy predicting more “balanced” consumer confidence this year. 

A pre-loved Christmas

With secondhand platform site visits up 8.2%, according to data from Similarweb, demand for pre-loved gifting surged over Christmas.

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Demand for pre-loved gifting from platforms such as eBay surged over Christmas

Popular with the eco-conscious shopper and those looking to get more for their money, secondhand gifting was an obvious choice for those looking to stretch their spend and get better value.

Allegations of unethical production and labour practices surrounding fast-fashion giants such as Shein and Boohoo also encourage consumers to make the switch when looking to purchase gifts or items for themselves.

eBay director of luxury Keith Metcalfe told Retail Week that the stigma around pre-loved gifting diminishes year on year, making purchasing secondhand more popular than ever before. He said people were more open to receiving pre-loved presents in 2023, a trend that will no doubt continue into 2024.

Supply chain pressures loom

While the ongoing Houthi attacks on international shipping in the Red Sea, which began in November, did not happen early enough to affect retailers’ stock levels for Christmas, the ripple effects are being felt in global supply chains.

With international shipping giants like Maersk and CMA CGM re-routing ships around the Cape of Good Hope and recent military intervention by the US and UK seemingly only increasing the Houthis’ determination to cut off the vital trade artery, this situation does not look likely to improve any day soon.

Retailers and supply chain experts alike agree that these issues are now baked into the global system until at least spring 2024.

If the situation has not improved by the summer, the sector could be looking at potential availability issues and rising costs, as well as the distinct possibility of 2024 Christmas stock levels being affected.

“The worry is that it’s probably going to take a good four to six months to normalise,” says one concerned retailer. “We could find ourselves in a situation where that might start to impact preparations for next Christmas. That’s probably more of an issue.”