The new year is a hectic time for retailers. For one, they need to plan for the year ahead. Now we are safely into 2018, it’s also a time to reflect on one of the most important retail events that has just passed and its effect on the year to come. We’re talking, of course, about the Christmas period. UK retailers have slowly but surely released their Christmas results for 2017.
There has been mixed performance, with many of the biggest players still feeling the shock at the outcome. Read on as we look at the highs, lows and noticeable trends from the recent Christmas results and what to expect from the year ahead.
At the same time, we’re seeing an increasing demand for quicker delivery. A massive 67% of shoppers said they would spend more online if there was an option for same-day delivery, with 52% saying same-day delivery was a deal-breaker when it comes to choosing between retailers. This is driving a demand for warehousing and distribution centres ever closer to the main areas of demand – precisely where available premises are scarcest. As a result, businesses are having to think outside the box when it comes to finding (or creating) warehouse space in urban areas.
Read on as we explore the concept of underground warehousing, and whether it is the right solution for the warehousing crisis.
The “big supermarkets”
Starting with the UK’s biggest retailer, Tesco saw like-for-like (LFL) sales, which exclude newly opened stores, increase by 1.9% in the UK. This was largely down to a 3.4% rise in food sales in the six-week period before 6th January, but also a strong 5% growth for online grocery sales. Tesco’s Finest and the upmarket Go Cook range is believed to have assisted in this uplift, proving popular with both online and offline customers.
However, Tesco were hit by the collapse of wholesalers Palmer & Harvey, putting pressure on their distribution network and impacting tobacco sales significantly across their stores.
Sainsbury’s performed similarly well in the third quarter, reporting growth of 2.3%. Broken down, non-fuel retail sales saw a 1.2% rise, with LFL sales up by 1.1%. So, what contributed to the larger overall growth? Again, there is a clear push towards online, with 8.2% growth for Sainsbury’s online grocery sales over the 15 weeks leading up to 6th January.
Store pick proving a boost
The collapse of Palmer & Harvey wasn’t bad news for everyone. Morrisons picked up new business providing tobacco products to McColl’s stores. They have seen a particularly strong festive season with sales for the last six weeks up 3.7% compared to a year ago. Sales at the online arm of the supermarket, Morrisons.com, rose by more than 10% and its “The Best” premium range grew by 25%. Morrisons have also put a lot of effort into expanding their “store pick” service.
While other supermarkets offer delivery from their warehouses, Morrisons has collaborated with Ocado to pick and deliver from stores across the country. Essentially, merging their online and offline facilities allows them to reach far more of the country. This resulted in over 10% growth in online sales.
Rise of the discounters
You would have had to be living in a cave to not notice the rise of discount supermarkets in the UK. Aldi and Lidl have enjoyed superb growth in recent years – and Christmas 2017 was no different. With most of its growth coming through new stores, Aldi doesn’t publish LFL sales – but reported a 15% rise in December sales. Not to be outdone, Lidl claimed to be the fastest growing supermarket, with an impressive 16% increase for December sales – again sidestepping the LFL figures.
Away from groceries
Of course, there’s far more to retail than just food and drinks. Here’s how some of the major non-grocery retailers performed:
- Debenhams – LFL sales up 1.2%, but with impressive 15.1% digital growth. They believe their tactical discounting provided a strong platform for sales prior to Christmas, but their post-Christmas sales were below the expectations of the leading retailer.
- Next – No LFL results given, but 1.5% growth in sales across channels, including 1.1% from “new space”. Again, this seems to be largely down to online growth, which stands at 13.6% over the 54 days before Christmas.
- Mountain Warehouse – The December cold spell did the outdoor retailer some good and they certainly helped their customers brave the elements this Christmas. With online sales up 76.6% in the 6 weeks before Christmas, records show that Black Friday was the busiest in its 20-year history.
- Boohoo – The online fast fashion supplier saw revenues double to £228m in the four months to the end of December. The retailer can hardly keep track of its own exceptional growth, having revised its expectations for the financial year twice.
- Superdrug– Even health and beauty retailers have felt the benefits of being online, with Superdrug announcing a 30% rise in sales from their website, which in hand aided a 2.4% jump in LFL sales.
Online is key
It seems the uncertain economic climate of 2017 has allowed discount supermarkets to flourish. However, a number of other retailers have maintained reasonable growth overall.
How? It’s largely down to their efforts online. Almost all retailers saw significantly more growth online, which in some cases made up for poor performance elsewhere.
Understandably, this means companies based solely online are also thriving. A shift towards online means the likes of ASOS are experiencing more growth, with a huge 23% jump in sales. The launch of BHS.com has also been a success. Following the collapse of department store BHS, sales for the online-only “start-up” increased 43% for the last three months of 2017.
Looking to the future
The clear shift towards online could affect how businesses manage their eCommerce operations over the coming year. Customer demands are changing with online shopping – and it’s more important than ever to be closer to customers.
Faster delivery is now top of the list for both grocery and non-grocery retail. And next-day delivery is no longer a boast, with same-day delivery being offered by an increasing number of retailers. To enable this shift it has become increasingly important to take expand your warehousing network, and bring it closer to the customer. In Bis Henderson Space’s most recent strategy insight paper, we discuss the benefits of going local, and how retailers should consider opportunities to relocate their fastest moving SKU’s closer to highly populated areas to improve speed and flexibility.
Dealing with peaks
2017 has also shown that the distribution sector is becoming much more “peaky”. As opposed to steady sales throughout the year, with the expected rise in sales around the Christmas period, there are several noticeable peaks across the year, around the likes of Black Friday and the summer sales. Businesses are now becoming more reliant on these peaks to make up for quiet periods and, as a result, they’re now required to be much more flexible with their warehouse space and other resources.
At Bis Henderson Space, we utilise our extensive business network to link companies with spare capacity to those in need of extra space or resources allowing businesses to find the flexible space they need, without the risks associated with being tied into long term contracts. This will be even more important looking to Christmas 2018, and the developments that this year may bring to individual businesses. Bis Henderson Space can also call upon our portfolio of logistics partners to provide various value-added services to support your Christmas operations, so you don’t have to worry about returns handling, container de-stuffing or palletisation.
If you’re planning ahead to deal with the peaks and troughs of 2018, please contact our team to discuss how we can help.