Analysis – The business of Christmas.

Every year, someone will be eagerly watching the roof of the weather centre in London in case a snowflake should fall, having bet on a white Christmas. But want kind of Christmas will British retailers be betting on?

One thing is for sure, they certainly will not be hoping for a white Christmas. Bad weather is a notorious hindrance for retailers.

In fact, the long-range forecasts will be giving retailers plenty to worry about.

According to predictions, there is a strong chance of severe conditions in the days before Christmas, traditionally the busiest as inevitably the buying public waits to the very last moment to finish its Christmas shopping.

‘Retailers should be encouraging people to get out there now to do their shopping,’ says Alastair Eperon, director of corporate affairs at Boots plc and chair of the CBI distributive trades survey panel.

‘There will always be a certain amount of ‘must have’ expenditure, but there is all the other expenditure associated with this time that retailers will be looking for,’ adds Eperon. Bad weather will not help.

Irrespective of the weather, retail consultancy Verdict forecasts a weak Christmas.

Verdict predicts a 3.2% year-on-year sales increase for December, a spend of #26.1bn. This compares with a growth of 4.6% last year, which was still some way below the bonanza many anticipated.

The only ray of hope lies in consumer electronics, particularly games and mobile phones.

As Verdict says: ‘These are very much the new toys for both men and women, girls and boys, young and old. They are fun and interesting.’

Latest figures from the CBI confirm Verdict’s view. They show retail sales were flat over the last month, when some growth would have been expected. ‘This is perhaps a reflection of the trials and tribulations of recent events, but it shows that the shops will need to do some catching up for the rest of the year,’ Eperon argues.

Last Christmas the retailers eventually reported satisfactory – if disappointing – figures, but it was touch and go for a while, with many shoppers holding off until the very last moment before opening their collective wallets.

The fact that some stores started their January sales before Christmas last year was a clear indication that consumers had become more sophisticated, and were prepared to wait until the bargains materialised.

Will this be the same this year?

Anecdotal evidence suggests some retailers will be following the same plan again.

Early indications would suggest that while sales were holding up, there was a growing worry that a combination of factors would make for a flat festive period for retailers.

‘It is too early to tell,’ says Peter Williams, financial director of Selfridges. ‘The economic factors are reasonable, though obviously we don’t anticipate selling so much champagne this year.’

Amanda Aldridge, UK head of retail at KPMG, lists a number of issues that will have an affect on retailers’ confidence.

Last year was of course the Millennium; people were buying more presents and had more time.

‘We have one less holiday this year,’ Aldridge says. ‘And this year Christmas Eve falls on a Sunday. Although there has been an increase in Sunday shopping, it still won’t leave time for the last-minute shopper.’

It was feared that the fuel crisis has had a knock on effect, affecting the distribution of products prior to the busy season, and that this would not be helped by the floods and rail disruption.

Not so according to Williams. ‘It didn’t have a noticeable effect,’ he says.

Richard Lloyd Owen, head of consumer business at Deloitte & Touche, supports this view. ‘Sales dropped over the period, but the only real issue was that retailers might have had to spend a bit more to ensure they had sufficient stocks,’ he says.

Lloyd Owen does not share others’ pessimism, arguing that the retailers are being relatively optimistic and realistic.

‘They want and need it to be a good Christmas,’ he says.

But the two factors of floods and cracked rails have possibly hit the number of shoppers heading out to the high streets, further denting retailers’ confidence.

At the beginning of this month, the KPMG-British Retail Consortium retail sales monitor reported autumn gloom on the high street, and Aldridge believes the October figures did not look good for the future.

‘These figures spell gloom for the high street in the run-up to Christmas. The impact of the fuel crisis, rail disruption and some of the flooding, together with a slowdown in the housing market are all factors impacting on the figures and are likely to influence November figures too.’

‘A poor half-term week impacted on children’s wear, children’s footwear and toys,’ Aldridge adds.

Toys are synonymous with Christmas, and observers will be looking at how the toy shops perform and what will be the hot, must-have toy in children’s stockings this year.

However, Verdict does not offer much hope. ‘With no major new invention or launch in the offing, the traditional toy market will find itself left behind again this Christmas,’ the consultancy says.

Sony was hit earlier this month with news that it would have problems fulfilling demand for its Playstation 2; arguably parents will hold off until they are available in the shops again rather that substituting with other games consoles.

A toy such as Playstation 2 represents a significant purchase for many families, so if they are unable to purchase it before Christmas, it is likely they will hold off until the new year, damaging retailers’ sales targets in the process.

The problems experienced with distribution caused by floods, cracked rails and a lack of diesel serve to illustrate the precarious nature of the retail and distribution sectors.

No more so than in the online shopping arena.

Major concerns were expressed last Christmas where the hype of online shopping did not match the reality.

Verdict calculated that last year online sales for the two month Christmas period reached #98m.

This year it predicts #330m, representing 22% of total internet sales for the year.

It was delivery that let down many shoppers.

This will have to change this year if the internet is to prove itself as a viable alternative to the traditional scrum on the high street.

Verdict says: ‘Clearly, many consumers were turned off the internet by their experience last year. However, this is more than compensated for by the massive influx of new shoppers willing to try online for the first time. The industry really does need to deliver this year.

‘There has been a smartening up of the retailers,’ says Aldridge. ‘Fulfilment will be key to success.’

In particular, the smaller retailers will need to improve if they are to compete in the e-world.

According to Lloyd Owen the satisfaction rates for those that did shop on the internet were high, and that consumers will give the e-tailers the benefit of the doubt.

Lloyd Owen also points to the fact that up to 15% of the buying public this year will use the internet to help it decide on purchases before heading out to the high street.

So will e-commerce have any noticeable affect on the traditional high street outlets?

Although online shopping has become more important over the year, according to Williams it is still not seen as a major alternative.

‘You don’t get the same shopping experience on the net,’ he says. But Williams agrees that in certain areas, such as books, CDs and software, the internet could provide serious competition.

One innovative delivery mechanism has been introduced by Waitrose, where the emphasis is on flexibility.

The John Lewis supermarket is piloting what it calls a five-tier approach, where customers can choose a convenient delivery time, or elect to collect the goods at the shop, or have them delivered to the workplace. More innovative solutions will be demanded from the increasingly sophisticated consumer.

The one piece of good news for retailers to emerge has been on interest rates.

Last week, the Bank of England voted not to increase interest rates, and there are signs of a possible cut in the near future.

Retailers might not be hoping for a white Christmas, but they are certainly praying for consumer boom. Whether Santa brings them their wishes remains to be seen.

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