Analysis: What are retailers doing to avoid a nightmare before Christmas?

The gloom has even got to Amazon, which terrified Wall Street by warning that sales would be $15bn short of predictions this year and operating profit could be anywhere between $4bn and zero.

Tech giant Apple also flagged its cautious outlook for the December quarter, saying “total company year-on-year revenue performance will decelerate during the December quarter as compared with the September quarter”.

But after a slow summer, the sector needs to squeeze all the value it can out of the golden quarter. So what are retailers doing to make sure this Christmas isn’t all bah humbug? 

Christmas always comes

Consumer confidence may be bobbing along at a historic low but retailers can find solace in the fact that, even in the worst periods of financial difficulty, Christmas always comes. And the data shows that shoppers don’t intend to let economics get in the way of their celebrations – at least for now.

A survey by Tesco found that more than half the nation say they are not planning to compromise when giving gifts and more than a third say this festive season is more important than ever. 

“With many currently facing a squeeze on their finances, Christmas 2022 will certainly be like no other,” says the grocer’s chief customer officer Alessandra Bellini. 

“People are looking for different ways to make the season special, whether that’s adding new twists on traditions or seeking out ways to spend less without having to compromise on quality.”

Market intelligence firm GfK is also confident that, although hard to predict, the nation’s financial worries are unlikely to have a catastrophic impact on retail sales. 

“Times like these are an opportunity for retailers to show value and approach shoppers empathetically, rather than patronise them, and demonstrate that they’re there to help them”

Joe Staton, GfK

“People do tend to go a bit bonkers at Christmas anyway,” says GfK chief strategy officer Joe Staton. 

“People will always make exceptions for treats, toys for children and small indulgences at Christmas. Times like these are an opportunity for retailers to show value and to approach shoppers empathetically, rather than patronise them, and demonstrate that they’re there to help them.”

So which categories will benefit? Etailer Very is hopeful that most shoppers will be making exceptions when it comes to gifts for children. 

“We think it’s going to be a big one for toys,” says Very Group chief financial officer Ben Fletcher.

“We’ve made the choice to buy into toys – we’ve got 200,000 more toys than we did at this time last year – and they’re selling well, and that’s allowing us to meet demand.”

Shop early, shop often

The most popular way to get more value out of the season is to make it last longer. 

Six out of 10 Brits are planning on starting their Christmas shopping early this year, while half plan to begin before November and a third have already started, according to research by Landsec. 

Matching that shopper mindset and facilitating it by launching ranges in September has been a key strategy for much of the sector seeking success during this quarter.

The message appears to be landing, too. Payment company Adyen, whose clients include Hamleys and Molton Brown, has recorded transaction volume growth of 127% in September and 79% in October, compared with the same months last year. 

After launching its festive ranges at the same time as its Halloween products, which is earlier than it ever has done before, Wilko reports that festive trading is significantly ahead of forecast. 

“We’re seeing customers plan ahead and budget for occasions, and our sales have been encouraging,” says Wilko chief executive Jerome Saint-Marc.

“We’re ahead of forecast by 28% for Halloween and more than 30% for Christmas.”

Similarly, Superdrug reported a 219% sales uplift of Christmas gifts compared with this time last year. 

“Unit sales of Christmas gift sets have increased as shoppers seek value amid the rising cost of living,” says a Superdrug spokesperson. 

“As it stands, seven in 10 of the top-selling Christmas gifts are in the men’s and women’s toiletries categories.” 

“Getting people to shop forward is a big part of our strategy for this year”

Harriet Hastings, Biscuiteers

And it’s not just value retailers who are benefiting from an early start. For the first time, luxury gift retailer Biscuiteers is offering free delivery on Christmas orders booked during October.

The initiative has so far netted the business a 30% uplift in its range of festive iced biscuits, which retail anywhere between £8 and £75, compared with the same period last year. 

“Getting people to shop forward is a big part of our strategy for this year,” says Biscuiteers founder and managing director Harriet Hastings. 

“We do an early-bird shopping week at the start of November. We rarely discount and that’s our way of getting around Black Friday.” 

Managing promotions and deals

Starting Christmas early not only helps shoppers spread the cost, but it also allows plenty of time to find a bargain. And retailers are preparing for particularly deal-hungry customers this year.  

“Consumers are taking greater care over their purchases, prioritising shopping around to find the right gift at the right price, so they’re starting early to hunt for the best offer,” says Landsec managing director for retail Bruce Findlay.

“We’ve seen this early demand play out across our retail destinations already. We recently held our annual VIP event across our outlet centres, offering additional discounts on top of already reduced prices. These events proved to be more popular than ever before, driving strong footfall to the centres.”

Value has moved up the priority list, but retailers are in no position to slash into already shrinking margins. So what’s the alternative?

“You need to be more flexible with your promotion calendar,” says Fat Face head of digital Liam Price.  

“Where you might have historically done blanket discounts, you should retain the flexibility to target discounts based on different customer segments. While it’s going be tough for everyone, it’s going to be even tougher for some.”

Investing in fulfilment

In contrast to careful budgeting and planning ahead, it’s likely that fluctuating availability will bring volatility to cash-strapped shoppers’ purchase decisions, according to Staton. 

“Consumers will be very price-conscious and driven by availability,” he says. “If something isn’t on the shelf, in times like this, it’s unlikely that shoppers will then go on the hunt for it. The moment will pass.”

To tackle this, retailers are banking on their post-Covid investments in operations and fulfilment. 

Boots made fulfilment a top priority after losing an estimated 7% of shoppers to long delivery times last year and has now embraced tech solutions including made-to-measure sustainable delivery packaging and automated omnichannel pickers.

“Our labour cost per unit has come down to 60% as a result of opening the new fulfilment centre. That gives us not only capacity, but real efficiency”

Ben Fletcher, Very

Thanks to that investment, the health and beauty retailer is confident it will be able to handle whatever shoppers throw at it this year.  

Very has made similar improvements. Over a year ago, it opened a new highly automated fulfilment centre, which it describes as a “great investment”. 

“It gives us the capacity to be able to manage a very efficient operating model,” says Fletcher.

“Our labour cost per unit has come down to 60% as a result of opening the new fulfilment centre. That gives us not only capacity, but real efficiency and the ability to get the product to customers in a timely way.”

Next year’s problem

The biggest gift under the tree will be for players offering buy now, pay later (BNPL) options at the checkout. Usage of the method is expected to rocket this year, albeit according to payments provider Klarna, particularly among younger shoppers.

A report by the fintech company claims that three-quarters of millennials and more than half of Gen-Z consumers say they will be looking for flexible payment options for big purchases this Christmas. 

Demand is such that Very worked its in-house BNPL offer into this year’s Christmas ad, which it says was encouraged by consumers during its market research.

“We offer the widest range of flexible ways to pay in the UK and our customers really value that because, obviously, it gives them a range of different options to manage their household budgets,” says Fletcher. 

“The relevance of those flexible ways to pay is higher now than it has been for a long period of time, so it was appropriate to make sure customers were aware of that.”

But retailers will soon have to deal with the side-effect of shoppers throwing caution to the wind during December: the bill that comes in January, just as fuel prices begin to bite. Maybe a lump of coal in the stocking wouldn’t be such a bad thing? 

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