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Retail’s Christmas rush

The first wave of coronavirus restrictions showed there are opportunities as well as challenges for the peak Christmas shopping season.

  • The Office for National Statistics (ONS) has confirmed that the first coronavirus lockdown in March was followed by six straight months of growth in retail sales

  • As we emerge from a second lockdown, retailers will have to be prepared to cope with the potential sales rebound in the remainder of the crucial “golden quarter” of 2020

  • However, they remain under pressure to limit the number of shoppers allowed into bricks-and-mortar stores, while capitalising on investment in improving their online offering

Retailers’ strategies for coping with coronavirus restrictions over Christmas and beyond have been shaped by what they learned during the UK’s first painful lockdown in the spring and early summer. But as the nation gears up for Christmas, what can retailers expect?

“The really important learning experience was immediately after the first lockdown, when the positive surprise was that there was still strong consumer demand,” says Kien Tan, director of retail strategy at PwC.

“That means the bounce back after the second lockdown [in November] could be pretty strong, so retailers need to hold their nerve and prepare for how to cope with that potentially pent-up demand over Christmas,” he says.

“Instead of shutting down or reducing their stock levels, retailers need to continue driving their sales online, gear up to meet that demand and work quickly to adjust their product mixes as well as their sales channels.”

Strong numbers

The Office for National Statistics (ONS) has confirmed that the first lockdown was followed by six straight months of growth in retail sales.

The British Retail Consortium (BRC) says the challenge for retailers who have already been hit hard by the pandemic is to deal with the potential sales rebound in the remainder of the crucial “golden quarter”.

Tom Holder, a spokesman for the BRC, estimates sales will be down an estimated £2bn a week in November compared to about £1.6bn a week in the first lockdown in the spring.

“The stakes are simply a lot higher because not only is it the most important season for retailers, they have already been through a tough time and been forced to spend a lot of money putting in a load of extra safety measures,” he adds.

Meanwhile, Tan says the impact that November’s lockdown of non-essential retail stores will have on Black Friday turnover may be reduced by the fact that Black Friday had already evolved into a largely online event that has spread out to become more of a ‘Black November’.

“If you go back to the early 2010s, there were big queues at stores and people fighting over TVs but that hasn’t happened in the last four or five years because retailers have driven people online to get their bargains,” he adds.

“That reduces the effect of lockdown, and click-and-collect is available, but you do still have the problem of consumer confidence being reduced by the broader pandemic and loss of incomes.

“For retailers with a strong online proposition, it’s not so much the physical aspect of closing shops that is preventing people from spending, it is nervousness about the economy and the pandemic.”

PwC research on consumer sentiment has shown that the biggest fall in confidence had been among those aged under 25, Tan says.

“The good news is that young people have the most volatile confidence and are more likely to bounce back like they did when the economy reopened early in the year. The nature of their disposable income is also pretty volatile: they are most likely to be affected by furlough but also most likely to get their jobs back.”

Many customers were cashed-up because the virus had reduced their outlets for discretionary spending, so retailers should prioritise products that are likely to be in demand now, such as toys, homeware and leisure wear, rather than fashion items aimed at large social occasions.

“You need to pivot to things that people want right now,” says Tan. “M&S is a good example – it has been using its emails to promote things like casual wear rather than new suits or party frocks.”

Some parts of the retail sector will actually have a pretty good Christmas. I think the temptation [for households] will be: ‘We’ve had a terrible year so let’s try and make Christmas more special and splurge a bit more on the kids

Richard Lim, chief executive, Retail Economics
Hitting the fast-forward button

Richard Lim, chief executive of Retail Economics, a research firm focused on UK consumer industries, says some retail categories that thrived after the first lockdown – for instance, office suppliers that sold equipment to homeworkers – will now tail off.

But he adds: “There will still be a transfer of spend into other areas of retail and the main beneficiaries will be those who can target the right products and move their sales online.

“One retailer with about 150 shops across high streets told me that during the first lockdown they fast-forwarded their online operation by about three years in the space of five months. That would be echoed throughout the industry as people have learned the lessons of the first lockdown and invested significant sums in improving their online proposition.”

Lim observes that some of these investments have been around improving IT infrastructure and distribution processes, as well as working closely with courier services and being innovative around click-and-collect where staff are taking orders out to people’s cars.

“So my view is that some parts of the retail sector will actually have a pretty good Christmas,” he says. “Think about the typical John Lewis shopper. Those households have good incomes and better job security than many, and I think the temptation will be: ‘We’ve had a terrible year so let’s try and make Christmas more special and splurge a bit more on the kids.’”

Online marketplaces such as eBay allow small retailers struggling for online resources to quickly build an online presence – and even their larger counterparts have used these marketplaces to move discounted stock, Lim adds.

Some small retailers have banded together to share online shopfront and delivery platforms representing local high streets or regions, ranging from food and drink suppliers in Cambridge to local traders in Hackney, East London.

Fergal O’Mullane, co-founder and CEO of retail tech platform Validify, says some retailers have shown “incredible ingenuity” to improve customer experiences amid coronavirus restrictions.

Japanese homewares store Muji has adopted a mobile self-checkout solution by MishiPay, which allows shoppers to scan items with their smartphones and pay with a choice of digital methods. This means they can leave the store without waiting in the queue or dealing with staff and checkout terminals.

The online men’s shirt retailer Blake Mill has implemented a virtual fitting room developed by Sizebay that gives customers a size recommendation, calculates body measurements and allows them to view the fittings for available sizes.

Accommodating customers

Lim believes the main challenge in the run-up to Christmas will be one of logistics and coping with pent-up demand as social-distancing restrictions continue.

“About 18% of sales last Christmas were online, and the industry can’t suddenly lift that to 50% – 60% of sales, so sorting centres and the courier network are really critical to avoid bottlenecks,” he says.

Meanwhile, retailers will be under pressure to limit the number of shoppers allowed into bricks-and-mortar stores. “The usual images of bustling high streets are not going to be the case this year,” adds Lim. “There will be queues that will lead to a really frustrating customer experience and further fuel online sales – and that takes us back to the question of whether the industry will be ready to cope with that seismic shift to online.”

The BRC’s Holder agrees that “you simply can’t squeeze two months of shopping into December when the capacity of your store has been greatly reduced”, adding: “The only mild saving grace is that there may be more people shopping during the week instead of focusing on the weekend because people working from home have a little more flexibility to nip to the shops.”

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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