Unlocking Consumer Spending

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Now that we’ve had chance to settle into the New Year and all of the possible opportunity it brings to retail, it’s also a time to digest last year’s retail performance.   2011 has been a tough year for retailers as consumers reign in their spending, due to a reduction in disposable income and fears about job losses. A number of high profile retailers, such as Barratts, Priceless and Blacks Leisure Group have already gone into administration and several smaller companies have thrown in the towel.  So we might expect that the retailers Christmas reporting season will provide further evidence of doom and gloom in the sector.

However, some retailers have already posted encouraging results which have buoyed city analyst expectations.  Pragma considers that the focus on a short window of Christmas trading – say five weeks – in retailers trading updates can mask underlying performance.

Here are four reasons why recent results should be read with some caution:

1. Retailers have generally taken to reporting a five week period from the beginning of December to the first week in January. The Christmas period being reported on in 2011 had Christmas day falling on a Sunday, compared to Christmas Day on a Saturday in 2010 – effectively providing retailers with an additional trading day in the four weeks before Christmas. Just from a simple days trading point of view, the extra pre-Christmas day is worth, depending on the type of retailer, between 2 and 4% in LFL sales in the run up to Christmas.

1. The other gain for retailers in 2011 is that New Years Day occurred on a Sunday this year and a Saturday last year. For most retailers, New Year’s Day tends to be something of a write-off. So this year retailers benefited because they lost trade on a Sunday, which normally represents 8 -12% of a week’s business, compared with last year’s Saturday, a day when many might normally expect to take between 20% and 30% of a week’s total sales.

1. There is that old chestnut, the weather; last year the extreme cold and snow in early December really affected pre-Christmas sales. To give a feel for how dramatic the change in weather was, the coldest place in England was -15C and snowy on Christmas Day in 2010, whereas in 2011 the same place was +13C and reasonably sunny. Although some retailers benefitted from the cold snap in 2010, many more struggled, simply because customers did not bother to go onto the High Street

1. And finally, pre-Christmas sales in 2011 started earlier than any previous year. Trading updates already presented this month have focused on top line sales performance with little mention of the impact on gross margin. With the majority of retailers offering between 25% and 50% off during the run up to Christmas, how much has margin been affected to generate top line sales?‘

With the future of the UK high street being discussed by the government and an announcement following the Portas Review expected in the Spring some retailers are hoping for dramatic changes to help boost consumer spending. Pragma works with retailers to help unlock consumer spending. Pragma’s key strength lies in understanding how customers behave and what motivates them to buy. Pragma is renowned for turning insights into rapidly improved business models and creating a tangible, measurable difference in sales uplift and profit growth.