With Tesco and Asda increasing their non-food offering and stealing market share from the high street, this year’s Christmas trading period will be extremely competitive. Whatever the outcome for retailers, there will undoubtedly be significant short-term benefits for consumers.
Last Christmas, according to research from TNS GiftTrak, nearly 600 million gifts, worth &£15.1bn, were bought in Britain. The findings show that the number of gifts bought increased by 4.3 per cent compared with Christmas 2002. The overall value of these purchases, however, remained stable, increasing by less than one per cent.
Although the Christmas gift market is relatively static in value, owing to intense competition and downward pressure on prices in the three months leading up to Christmas, the overall gifts market in Britain has grown by two per cent over the past year and is now worth approximately &£37bn. This represents about 1.5 billion gifts, a rise of three per cent year on year.
For the first time since TNS began tracking the Christmas gifts market in 1994, the average spend on individual Christmas gifts has declined by more than &£1, from &£27.51 to &£26.47. This fall is attributable to three factors. Firstly, the major stores continue to increase the negative pressure on prices. Secondly, most high street retailers offer promotional deals such as “mix & match” and three-for-two offers. Finally, a trend towards last-minute shopping has combined with early-starting sales. Approximately 40 per cent of all Christmas gift shopping is now done in the two weeks immediately before Christmas. In 2003, a number of retailers launched pre-Christmas sales during this key period to boost volume but, in turn, this impacted on the overall value of gifts sold. Toys and games remain the most popular gift category during the run-up to Christmas: they account for 18.7 per cent of the gift market, with a value of about &£2.8bn. Within this category, the volume of games software and computer games bought as gifts has increased by 18 per cent over the past three years, whereas more traditional items are in slow decline.
The overall value of the toys and games market suffered last year, particularly around Christmas time, partly because of the price discounts offered by major retailers and also as a result of a significant decline in the prices of electronic hardware such as games consoles.
Children’s clothing is the second-largest gift category by volume, with a 7.7 per cent share of the gift market and a value of &£1.9bn. Asda and Next have both performed strongly in selling clothes as Christmas gifts. In the year to June, Asda increased its market share in this sector from 7.2 per cent to 11 per cent. Next’s share grew from 6.2 to 9.5 per cent over the same period.
Videos and DVDs have seen the biggest growth in the gifts market, up 60 per cent by volume since 2002. This has been entirely driven by the growing success of DVDs, in turn fuelled by the significant drop in the price of DVD players over the past couple of years. For the first time, last Christmas more DVDs than videos were bought as gifts (16 million versus 11.5 million).
For retailers operating the unforgiving pre-Christmas environment, it is becoming increasingly difficult to ignore one particular distribution channel that has more than doubled its share of Christmas gift purchases over the past two years: the internet. Although the internet only represented five per cent (by value) of all Christmas gift purchases last year, between 2001 and 2003 the value of Christmas gifts bought online more than doubled, with an overall increase of 139 per cent.
As a result, it has become virtually essential for traditional retailers to have an online presence, in order to capitalise on this expanding market. To be successful online, retailers need to have a specific interactive strategy, rather than merely transposing their store shelves on to the Net. The GiftTrak data shows that internet gift buyers tend to be much younger and more upmarket, and are more likely to be male, than the average in-store gift buyer. Also, they will spend significantly more on individual gifts: &£44.87, compared with &£26.47.
With this in mind, retailers need to adapt their product mix accordingly when selling gifts on the Web. Traditional retailers do have a crucial advantage: they benefit from high levels of awareness and trust compared with e-tailers. This is a factor they need to exploit.
On the basis of TNS GiftTrak’s findings, and statements issued by a number of key retailers in recent weeks, the stakes this Christmas are higher than ever. Some major retailers, including Marks & Spencer, Boots and WH Smith, have experienced poor results recently and their performances over the next three months will be under close scrutiny.
Lower prices, made more significant for many consumers by the increase in interest rates this year, are once again likely to be the driving force behind people’s choice of retailer. As a result, the public can expect better deals and more promotions this Christmas, and the deflationary trend recorded last year for the average spend on Christmas gifts is likely to continue.