In the mid-1980s, the UK retail landscape was very different. Aldi had yet to open here. Having conquered much of continental Europe, Ikea was just starting to eye Britain.
Sainsbury’s and Tesco ruled grocery retailing. Britain’s strongest and most admired retailer was Marks & Spencer. Next was not yet even on M&S’ radar. The industry was physically immature.
The consumer economy was healthy. Credit was increasingly easily available, allowing the public to buy now and pay later. Inflation in prices and wages helped to ease the pain of rising consumer debt. Growing retail businesses were all about opening more stores, preferably bigger and bigger ones.
“Many companies will sit down with a range of versions of their trading and choose the one that best fits the desired narrative”
Back then, UK retailers didn’t actually release any statements around Christmas trading at all.
The first ones started to emerge in the late 1980s, and once Pandora’s box was opened all the quoted companies felt obliged to follow.
From their earliest days, the rules surrounding disclosure were loose. Even then it was all about reading between the lines. The rules of the game – or lack of them – have not changed at all. Today, the need to read between lines is greater than ever.
No rules
So here we are again. Christmas 2019 is behind us and everyone is trying to make sense of what happened.
The issues with the reliability of these statements are much clearer than the releases themselves.
First, they are not independently audited but generated by the companies themselves. In effect, they can say whatever they like. It might be tempting to think there is no way responsible businesses would do this but in reality, there is ample room for them to choose the story they tell.
There are still no agreed rules. Definitions and timeframes not only vary massively from company to company but the companies themselves will often simply change their own from one year to the next.
Many companies will sit down with a range of versions of their trading across different dates and varying definitions and choose the one that best fits the desired narrative.
“Christmas 2019 was tough. We can safely assume that because each of the past five years has been progressively tougher”
One critical factor that played no part at all back in the late 1980s was online and the returns that inevitably result. This has become an increasingly material factor as the online channel has taken a larger share of traditional retailers’ sales.
It’s a factor that impacts non-foods much more than food, and clothing in particular. Bear in mind that clothing is by far the largest non-food sector and its Christmas peak magnifies the impact.
The point here is that trading statements cover a timeframe that by definition precedes the bulk of returns. It is extremely rare to hear any mention whatsoever of returns in a statement.
The significance of this needs to be viewed in the context of growth. These days many multichannel retailers have shrinking store sales and only online is growing. That means returns will be increasing as a proportion of reported year-on-year sales growth.
Beware what you read
How should these trading statements be read? My advice is to avoid reading very much into them at all.
Common sense says retailers that trade weakly in the first 10 or 11 months of the year will not suddenly start doing well over Christmas. The reverse is equally true.
Christmas 2019 was tough. We can safely assume that because each of the past five years has been progressively tougher. There is no evidence I know of, economic or anecdotal, to suggest this did not continue.
Moreover, discounting was at unprecedented levels and remained right the way through. In fact, Black Friday has made November a slightly more important trading month and December slightly less.
As with Black Friday, I’m sure most retailers would like to forget Christmas trading statements altogether. Like Black Friday, they are stuck with it.
So, beware what you read. The headline trading numbers will often be inflated. Some of those impressive-looking sales will be going back to customers as refunds – not great for cashflow.
No comments yet