Festive Frolics or Christmas Bloodbath?

By Clotilde Gros & Simon Neville

Watching this year’s Christmas adverts, the casual observer will note that retailers are aware it will be a tough festive period for households.

Soaring inflation and rising bills mean customers will hold back on spending and festive plans are expected to be curtailed.

Dig a little deeper into how the retailers are handling this – with their own costs continuing to rise in supply chains, energy bills and wages - and it is clear the high street is throwing everything they can at this to fight for the last penny from hard-pressed consumers.

Christmas will still happen – 38 days to go - and customers will spend money. But retailers know they will need to try even harder to ensure those shoppers head through their doors and not to their rivals.

Conversely, whilst shoppers are planning to spend less, marketing departments are spending more, knowing the fight is on.

Black Friday has reared its head again with even more promotions available than usual and retailers know this could be a do-or-die Christmas.

The festive period is typically a make-or-break period for the retail sector, with as much as 75% of revenues generated during the quarter.

But this year feels like a real fight for survival in which some big names – Joules, Made.com and Eve Sleep – have already fallen by the wayside this month alone.

Latest figures from the Office for National Statistics (ONS) and Insolvency Service show that retail insolvencies between April and June this year reached their highest level in a decade, with 478 going under.

Interestingly, it is not just high street retailers that are feeling the pinch, but online-only firms too, with the ONS saying it saw a 288% increase in online stores going under.

Retailers across the country managed to stave off the worst hits during Covid with government support, but running to stay still can only last so long.

It is true that the Chancellor has woken up to the problems on the high street and announced a £14bn package of business rates support.

But for many this will be too little, too late. Expect insolvencies to rise and profit warnings to pepper the Christmas trading updates for the listed retailers in January.

Recent survey results from a number of providers (Kantar, Ipsos, YouGov and Accenture) show that between 50% and 70% of respondents plan to spend less this Christmas (source: Stifel).

Retailers will be hoping that they can pull through this difficult period. They know their messaging has to be perfect, connect with customers and win over an ever-decreasing pot of discretionary spending.

For those who survive, they will go on to prosper but what is clear is only the fittest will survive, assuming they can show off to their customers just how fit and healthy they are.