There’s only so much you can do if the weather stops customers getting to your stores, or you delivering to their homes.
There’s only so much you can do if the weather stops customers getting to your stores, or you delivering to their homes. So it’s little wonder that Christmas 2011 turned out to be a white-out. The past week’s trading updates have shown that even the sector’s strongest players couldn’t avoid being affected over the festive season by the snow.
When Tesco struggles to a like for like increase of less than 1% at a time of high inflation, that says it all about how difficult conditions were. But that’s not to say that the relative performance of individual retailers should be ignored, and Sainsbury’s and John Lewis stand out for achieving the holy grail of giving customers the right products and Christmas experience while still being perceived as offering value.
And while these two were the big Christmas winners, honourable mentions too for those businesses that defied what by rights should have been losing hands to produce significantly less-bad-than-expected performances. It doesn’t mean that Argos and Game are out of the woods, but their festive showing represents genuine progress.
The question for 2011 is how much of the festive gloom was down to the weather, or whether it exacerbated what was going to be a tough Christmas anyway. No one can be sure. The strong start to the post Christmas Sales period gave hope that shoppers’ hibernation during the bad weather was only temporary, but the number of stores still on full Sale this week suggests that momentum may not have continued into mid-January.
What will have set alarm bells ringing this week is inflation reaching an eight-month high of 3.7%. While inflation isn’t always a bad thing for retailers, our ICM poll (page 4) shows higher prices will deter discretionary spending and the fact inflation is so far above the target 2% rate puts real pressure on the Bank of England to take action.
That, before long, is likely to mean higher interest rates. Rock-bottom interest rates have been the saving grace for many retailers during the past two years of economic turmoil. For those who have managed to stay in work, bargain basement mortgages have helped their disposable income grow.
It might be that in time one or two increases become inevitable. But a sustained series of rate rises is the biggest potential threat to the retail recovery. Mixed with rising unemployment, higher VAT and lower confidence, the outcome could be a toxic cocktail for retail.
Visit retail-week.com/blog today to read Tim’s Retail Day blog