I wrote a presentation over three years ago for a client about how the discount retailers were rising from the ashes of the recession, somewhat like a phoenix from the flames. Meanwhile those without a distinguishing offer were struggling and failing. At that point I predicted that we would see a continuation of that trend because the recession had taught consumers; when you spend less you don’t automatically get less.
The headlines in the two weeks that have followed Christmas 2016 have indeed shown us that the love of discount retailing gives no indication of abatement. Both Aldi and Lidl reported double digit sales growth amongst headlines such as ‘A Merry Lidl Christmas’. However, the savvier reader will have noticed that neither Lidl nor Aldi reported on their like for like performance. Both retailers have been the subject of rapid expansion which shows no sign of slowing down, Lidl plan to open 50 new stores in 2017 and Aldi plan to open 70.
What this means is that alongside the headlines about how well both retailers have fared over the Christmas period there are also reports saying that their trading levels were flat. On the 8th January, The Sunday Times reported that Aldi and Lidl lost the Christmas battle, whilst there was Christmas joy for Tesco and Morrisons. These headlines were followed only three days later by contradiction from the Daily Telegraph which said Aldi had enjoyed record Christmas sales.
Confused much? I certainly was.
Reading between the lines of press I think it is safe to say that Aldi and Lidl did have a profitable Christmas but that it will have been largely driven by their increase in floorspace.
Meanwhile, the return to profit of Tesco and improved results of Morrisons and Sainsbury’s demonstrates that the combination of their war on price and work to improve the in-store experience has paid off. And that is something which Aldi and Lidl have learnt from. Lidl has announced they are going to have an increased focus on quality, promoting that they have a retail offer to rival the ‘Specially Selected’, ‘Taste the Difference’, ‘Finest’ and ‘The Best’ brands of their competitors. Meanwhile Aldi are working on their in-store experience by promising to refurbish over 100 existing stores.
In such a competitive market there is no room for standing still or complacency and it will be interesting to see how 2017 pans out for the food retail market.
Meanwhile, on the high-street reports have been coming in of the quietest ever Christmas, reduced Black Friday sales and profit warnings at NEXT. However, this has been alongside record sales at boohoo.com, ASOS, Ted Baker and Joules. Lord Wolfson, the CEO of NEXT said that he anticipated that demand for clothing would remain weak, explaining
"clothing has had a good run. It had a soft landing during the credit crunch when things like car sales were hit harder but now there is a shift away from clothing to more experiential based spending like eating out, holidays and visitor attractions.”
(Lord Wolfson, CEO of NEXT)
Whilst what he says is true, there has been a big increase in the café culture and we have seen the reintroduction of leisure uses such as cinemas onto our high streets, not all clothing brands are performing poorly. So how is NEXT any different from the others that I mentioned above?
NEXT sits firmly in the middle ground. Neither cheap nor fashionable enough to compete with boohoo.com or ASOS and without the perceived quality to appeal to the more discerning shoppers flocking to Ted Baker and Joules.
NEXT has been making a move away from their smaller format high street stores, taking larger footprints often in out of centre locations where their homewares offer can have a level pegging with the clothing offer. Whilst on the one hand this means that they are improving their ‘look’ and appear to be morphing into a department store, it also means that while they make the transition their brand identity is suffering. However, careful management and a continued focus on improving store quality should see Next recover in the medium term.
At a time when consumer borrowing remains high and investment decisions remain uncertain in the post-Brexit world retailers need to stand out from the crowd.
Images sourced from Elliott Brown and Nikon.D60 via flickr