Christmas may be kind to UK retailers this year

Written by Bloomberg | Updated: Dec 1 2009, 03:47am hrs
Sarah Shannon

A year after swaths of panic price cuts led to a Christmas Armageddon for UK retailers, Britons may find it harder to get a bargain before the holiday.

Marks & Spencer Group, New Look Group and House of Fraser are among stores that say they dont plan full-scale discounting before December 25. With consumer optimism holding at an 18-month high, shoppers may still spend more in December than a year ago, according to researcher Mintel International. I cant see last years level of disorder on the high street, New Look finance director Alistair Miller said. Going on sale before the holiday is an absolutely suicidal move for retailers.

According to analysis conducted by PwC, only 43% of town-centre retailers offered discounts or ran promotions last week, compared with 62% a year ago. Ninety of Britains 100 biggest store-owners started discounting before Christmas last year as the financial crisis that followed the collapse of Lehman Brothers Holdings caused consumers to slash their holiday budgets.

Theres much less blanket discounts this year, said Richard Dickinson, chief executive officer of the New West End Company, the organisation which represents retailers in central Londons main shopping district. Only 40% of central London retailers are planning pre-holiday discount days this year. Numis Securities analyst Andy Wade expects Christmas to be a lot stronger for profitability as discounting subsides. Marks & Spencers gross margin narrowed by 1.7 percentage points in its last fiscal year after the retailer held two Christmas Spectaculars, one-day events in which the price of almost all products was cut by 20%. Those wont be repeated this year, according to executive chairman Stuart Rose, who said this month that the Armageddon scenario of 2008 has now passed.

M&S, the UKs largest clothing retailer, will trade full price through Christmas, Rose said. Instead of price cuts, the London-based company will rely on 1,000 new products such as a $75.2 Christmas dinner for four people. House of Fraser, the UKs third-largest department-store chain, will only run targeted promotions such as 25 pounds off party-wear in the run up to Christmas. Last year, the retailer offered price cuts of as much as 50% before the holiday. New Look, the owner of 610 budget fashion outlets, will run promotions on party dresses later in the holiday season and start discounting by as much as 70% from December 26.

Compared to the build up to 2008s doom and gloom laden Christmas period, 2009 is looking much more positive, said Jon Wright, retailing manager at market researcher Euromonitor. Retailers have cut their cloth accordingly in terms of inventory, staffing, merchandising and promotions.

According to PwC, stores were offering smaller discounts of about 25% last week, down from 40% a year ago. Mintel forecasts that December retail sales will rise by 2% after declining 1.7% in the same month last year. The lowest interest rates on record and improving house prices have buoyed Britons willingness to spend, according to Richard Hyman, strategic retail adviser to Deloitte & Touche LLP.

I certainly feel more confident about the economy, said Joanne Burrows, 61, as she shopped for gifts on Londons Oxford Street. My husband and I are feeling a bit more certain about our savings and house prices seem to have recovered a little. Id say Im spending more than last year. To date, few town centre retailers have followed the lead of department store chain Debenhams, which started a 250 million pound price cutting campaign on November 18, surpassing its 200 million pounds of discounts before Christmas last year.

John Lewis Partnership, the biggest UK department store owner, will start its clearance on December 26 at its Trafford outlet in northwest England. All other shops will go on sale from December 27. Sales at John Lewis rose 15% in the week ended November 21 and were up more than 20% in the next four days.

Christmas 2009 will be more profitable than last year thanks to a more benign competitive environment, said Kate Calvert, an analyst at Shore Capital. Price cutting in December last year was exacerbated by closing down sales at 815 Woolworths Group stores across the UK.

Not everyone agrees that the holiday will see growth in UK retail sales. Verdict Research forecasts a 0.7% drop. Deloittes Hyman expects Christmas sales to be a whisper up on last year, only to fall by 1.5% in 2010 because of a planned increase in value-added tax in January and potential rises in interest rates and unemployment.

On Oxford Street, 37-year-old Caroline Chambers said she can afford to spend more on gifts than she did last year. My husband feels more secure in his job and thats made a big difference to how we feel about spending, Chambers said. Things are improving.