A very different Christmas – a look at the early results of a unique Christmas trading period

Happy New Year and welcome back, I hope you were able to have a restful Christmas break, however you were able to spend it.

Typically in retail in the month of January, every year, there is only one story – the rolling post-match analysis of Christmas. Understanding whose Christmas advert converted into additional sales, who won, who lost, who overbought and who got their forecasts right is the focus in an otherwise quiet month. However, things are different in the new normal, and this isn’t now the only topic of conversation.

Firstly, Christmas. Early reports suggest that grocers did well in an unusually buoyant market, up over 11% on the previous year – festive gatherings divided meant more cooking and self-catering, widespread local hospitality restrictions meant home celebrating, and food supply concerns over the Brexit deal meant some additional buying. Their online sales jumped significantly, for 7.4% to 12.6% in the festive period, which will have been a major challenge for the management and fulfilment of such an order growth in a short space of time. The latest IMRG Capgemini Online Retail Index shows that this would have been exacerbated as Lockdown 2.0 and Black Friday together triggered the highest November online sales growth since 2007, up to +39% Year-on-Year (YoY).

Whilst some of these stats will be (hopefully) one-offs for the particular situations of 2020, others continue to demonstrate the themes of winners and losers within the current retail climate.

Those who can compete are defined by having a strong online presence, quality demand sensing and forecasting that can insulate a business from the biggest challenges of volatile trading environments, a nimble store estate that can quickly slide along the scale between serving instore customers and serving online customers, including surges of both.

In the coming week we will see what exposure others have to disruptions from lockdowns, and how that have been able to offset some of that through the strengths outlined. Next, for example, show some resilience in this sense (albeit with still a significant impact over the period), compared to Primark who have no online channel to fall back on.

Outside of the perennial January retail story, other ongoing stories relate to how retailers continue to adapt to trading in the pandemic. Morrisons has offered up 47 stores to become vaccination centres, and Tesco and Boots have also offered up their shops and supply chains (in Tesco’s case, its wholesale logistics arm which normally supplies the catering and hospitality industries) to support the rollout. Expect to see more during 2021 of retailers continuing to adapt to varying demands and trading environments, and how they use their space, scale and supply chains to support their customers and the wider recovery.

Finally, an interesting story comes in the way of Amazon buying 11 planes to boost its airfreight capacity. Amazon has been growing Amazon Transportation Services (ATS) since its inception in 2015, to reduce the costs it pays for ‘middle mile’ delivery. It is thought to have spent around $40bn on shipping in the first 9 months of 2020, through a mix of its scale and the increased shipping costs brought on by the pandemic – for reference, Fedex’s revenue for the year before was ~$70bn. If Amazon can apply its scale, competitiveness and innovation to middle mile shipping, it has a huge opportunity not just to reduce those costs but turn that cost base in to revenue, and go head to head with other middle mile delivers.

First week of 2021 done – we got there! Have a lovely weekend when you get to it and stay safe,

Nick

Nick Hoenig

Managing Consultant