Christmas is no longer the cracker it was for retailers

As consumers expect discounts and better value, Christmas can’t offer those margins retailers once enjoyed – a trend that will develop, says George Pitcher

It was Stephen Fry who wrote memorably some years ago that part of the problem with Christmas “is that spirituality keeps creeping into the festivities. Indeed it seems to be getting more and more religious every year. One yearns for a return to commercial values, to put a bit of the materialism back into the season.” Never mind the spirituality, there will be few retailers that will argue with Fry’s yearning for a return to commercial values.

Materialism, as defined in the consumerist sense of desiring as many possessions as possible, appears to be in decline. There are those who will argue that this is a post-modern phenomenon, as people grow dissatisfied with the limitations of scientific rationalism in favour of new-age spiritualities. That may be so, but it’s also a more prosaic trend than that: consumers are fed up with being ripped off by retailers.

There was a time, not so very long ago, when it was fashionable for consumers not only to spend with an extravagance appropriate for the economic boom in which they lived, but also to be seen to do so. The Eighties were the decade of conspicuous consumption. Today, in many respects, the UK economy is in better fundamental shape – with inflation all but beaten and low, long-term interest rates – but shoppers show little desire to be seen to be lavish in their spending. Some would call this bargain hunting – I would call it consumer fatigue. We have simply grown weary of being treated as fools to be separated easily from our money.

Christmas-trading results are due to start appearing in earnest next week, with Matalan and Marks & Spencer leading the way – perhaps it will be as well to get some of the worst news out of the way early.

Last Christmas, there was a late rush, which did much to mitigate a miserable trading season. The early signs have been that any late rush in 2004 had to be bought by retailers in the shape of early, discounted bribes – hardly the traditional point of the trading season in which the best margins are meant to be made.

The research companies that measure retail customer flows have been reporting “footfall” increases on the previous year and Verdict Research is sticking by its prediction that Christmas consumer spending will show a healthy increase of close on four per cent over 2003.

But, again, it’s difficult to know how much of this was bought with bribes, at the expense of margins – the pre-Christmas special sales day was practically ubiquitous.

Among the retail black spots, M&S hasn’t had time yet to get its act together under Stuart Rose (though eternity may not be long enough) and Sainsbury’s will have continued to suffer through its lack of presence in non-food product lines. Otherwise, it’s the familiar story that the retailers with large floor areas will suffer worst (Boots, WH Smith and so on), some of the niche operators will not have had it so bad (Monsoon, New Look), while the purveyors of electronic gadgetry will have had the best of it (Jessops, Halfords) on the high street. And internet shopping will continue to show that increasing numbers of consumers don’t want to go out to shop anymore.

It may be going a bit far to say that the Christmas market has changed forever. But the long-term trend is one to which retailers are going to need to grow accustomed. Traditionally, Christmas was the time when retailers made the only margins that would keep their shareholders content for the year. That strategy looks dangerously complacent now.

There are still retailers out there which claim that shoppers are prepared to wait for the sales. Wrong. The pre-Christmas sales show that consumers expect the margins that traditionally brought the shops comfort and joy at Christmas to be cut. Discounting is the new king for consumers.

This seasonal observation in the New Year offers some pretty stark lessons for retailers in 2005. They have to get used to a narrow-margin environment throughout the year. Some are better at this than others – Asda does it better than Sainsbury’s; Bhs is better than M&S. Shopping has to be made a pleasurable experience again – it’s not simply a misty-eyed nostalgia to say that 30, or even 20, years ago there was a better atmosphere in the shops at Christmas, in contrast to rather arrogant attempts these days to shovel it out as expensively as possible, except for the odd special and somewhat cynical pre-Christmas “sale”.

Above all, retailers need to grasp that consumers aren’t really that stupid. There has been a cultural shift, for reasons too broad to explore here, away from knowing the price of everything and the value of nothing. Retailers need to track that shift if they are to prosper this year and beyond.

George Pitcher is a partner at communications management consultancy Luther Pendragon

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