Retailers count true cost of Black Friday

London Briefing: Spending splurge dents Christmas profits

Retailers are counting the cost of Black Friday as they survey the damage the discounts have done to their profit margins over the Christmas season. Photograph: Rob Stothard/Getty Images

Retailers are counting the cost of Black Friday as they survey the damage the discounts have done to their profit margins over the Christmas season. Photograph: Rob Stothard/Getty Images

 

It started out as a shameless marketing ploy to part shoppers with their cash. Now retailers are counting the cost of Black Friday as they survey the damage the discounts have done to their profit margins over the festive season.

November’s hugely successful import from the United States – a day of discounting on the Friday following Thanksgiving – has radically changed the shape of Christmas shopping this side of the Atlantic.

Forget the fact that we don’t celebrate Thanksgiving in Britain or Ireland, nor is it a public holiday. UK retailers saw how successfully Black Friday kickstarted Christmas spending in the US and thought they’d try the same trick.

More UK retailers piled in than ever before last year and, if the well-publicised scuffles among customers were anything to go by, it was a marketing triumph.

Now, however, it’s clear that the Black Friday spending splurge in late November simply sucked business forward from the final week in December. For John Lewis, one of the biggest winners over Christmas and arguably Britain’s most successful retailer, the new pattern of trading is a cause of concern.

The department-stores group rang up record sales on Black Friday, with the final week’s trading in November outstripping the run-up to Christmas for the first time. But boss Andy Street is worried about the disruption caused by the huge spike in business so early in the festive calendar – and the impact on margins.

High-water mark

Despite having been an enthusiastic participant in Black Friday 2014, Street now says he hopes that will prove to have been “the high-water mark” for the phenomenon and that trading will return to more normal patterns next year.

“I don’t think we can put the genie back in the bottle but do we need to stoke that fire anymore?” he said. “I personally hope not.”

What’s bad news for the retailers is, of course, good news for shoppers, something Street acknowledged: “From a customer point of view it is a good deal. The question is, for retailers, is it in our interest to have that peak?”

Whether it’s in store groups’ interests or not, British shoppers, having had a taste of Black Friday, will not want to be deprived of their early bargains next Christmas.

Street is hoping other retailers will show restraint and restrict their price cuts but admits John Lewis will join in again if everyone else does. And that is likely to depend on just how desperate retailers are to drum up business when Thanksgiving comes around again.

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Both have emerged as clear winners over Christmas, something Next achieved without getting involved in the Black Friday craze.

The fashion chain never discounts its prices ahead of Christmas and was rewarded with a 2.9 per cent rise in sales over the two months to December 24th. John Lewis, meanwhile, posted a 4.8 per cent rise in sales over the five weeks to December 27th, while its upmarket Waitrose grocery chain saw underlying sales ahead 2.8 per cent in the five weeks to January 3rd.

Later this week some of the sector’s less successful companies will reveal how they fared and it’s unlikely to be pretty. Christmas turkeys will be the order of the day in the hard-pressed grocery sector, with Sainsbury’s scheduled to report today and the beleaguered Tesco tomorrow.

Tesco’s sales could be down by anything between 2 per cent and 5 per cent, according to analysts, while Sainsbury’s sales are forecast to fall 1.8 per cent as they struggle against the onslaught from Aldi and Lidl. Morrison’s, which reports next week, will also post a decline.

Simply Food

Like Waitrose, Marks & Spencer’s Simply Food chain is likely to be an exception, with sales expected to climb by around 0.9 per cent over the festive period. That is, however, where the good news is likely to end for M&S, which reports on Thursday, as its core clothing operation is heading for another quarterly fall.

Life in 2015 is certainly not getting easier for the grocers, which are leapfrogging each other with petrol price cuts and are also extending their wider price-cut programmes.

Asda unveiled £300 million of new reductions yesterday and Tesco boss Dave Lewis is widely expected to launch a new price initiative when he reports tomorrow.

Fiona Walsh is business editor of theguardian.com

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