FTI Consumer Industries Snapshot – Christmas Trading: A Review and Look Ahead to 2021
The big picture: Christmas 2020 saw an acceleration of existing trends; towards digitisation and discount-hunting – along with renewed focus on businesses’ adaptability, their roles in their communities, and their official status as ‘essential’ or ‘non-essential’.
E-commerce propped up dwindling retail sales: Online retailers including Boohoo, ASOS and The Hut Group saw sales surge, with loungewear rocketing to the top of wish lists for a Christmas at home, and multichannel retailers leant on their e-commerce arms to prop up revenue whilst non-essential stores remained closed. Supermarkets celebrated a record-breaking Christmas, with locked-down consumers driving unprecedented demand for online groceries, spending £12bn on F&B in December and having mini splurges on luxury consumables [The Daily Telegraph]. Many supermarkets “accelerated a lot of their plans for online development” [The Daily Telegraph], either through their own websites or by partnering with others, like Aldi UK stepping-up its home delivery via Deliveroo [Reuters].
Solidarity with physical retail: Despite high-profile online sales success stories, several big names (from Lidl, Primark, and Joules for instance and – counter-intuitively, Missguided) spoke out about the continued strategic value in physical stores [Retail Week, The Guardian]. Business rates reform (as well as an online sales tax) and the rent debate have remained front and centre during the year and continue to rumble on according to Berenberg.
Delivering community value: Not only did supermarkets report stellar Christmas trading, but they also delivered festive joy in other ways: Tesco thanked its front-line colleagues with a 10% Christmas bonus, as well as giving more than £60m in support to help charities feed people in need [Tesco Trading Update]; Co-Op’s “I’ve Got Time to Chat” campaign aimed to tackle loneliness [Charged Retail]; and Morrison’s offered its car parks up to help with the rollout of the government’s Covid-19 vaccination programme [The Grocer], as well as becoming the first UK supermarket to guarantee its store staff at least £10 an hour.
Stretched wallets boosted discounters: Discount stores demonstrated resilience, including Poundland, which enjoyed a “sales boost” over Christmas [This is Money] and Studio Retail, which saw customers “turn to value over the festive period” [Retail Week]. Jonathan Eley noted that “the expansion of these discount retailers has been accelerated by the coronavirus pandemic, but it is a trend that has been quietly building for over a decade”. E-commerce has yet to dominate the discount end of retail, noted a partner in the retail practice at Bain & Company, as “the online model struggles to replicate the bargain hunt element and it adds cost and complexity” [Financial Times]. Meanwhile, like many of its non-essential retail peers, discount retailer Primark might have £1bn sales lost but the group remains confident in its resilience with John Bason, Finance Director, stating “we are going to be back” [The Guardian].
Re-setting the bar in customer service: The blanket closure of hospitality venues left the temporary respite of Eat Out to Help Out a distant memory amidst the “worst year on record” for the sector [The Caterer], but many demonstrated resilience and adaptability in embracing appetite for cooking kits, home delivery and takeaway options where possible [i News]. Travel firms remained largely hunkered down, other than those servicing demand from Instagram influencers’ much-publicised exotic winter getaways [BBC News].
2021: The Year Ahead
London listings lift-off: The UK is “limbering up for listings” according to The Sunday Times City Editor, Jill Treanor, anticipating that 2021 will be a “bumper for stock market floats” [The Sunday Times]. So far Dr. Martens and Moonpig have led the IPO activity, with listings valued at £3.7bn and £1.2bn respectively. This is encouraging for other potential IPO candidates – including the flurry of online businesses such as Checkout.com, Deliveroo and Transferwise reportedly mulling floats. These listings could “deliver a jolt to the wider FTSE” [This is Money] and see “the start of a golden UK tech decade”, according to the head of Tech Nation [City A.M.]. Increasing IPO activity, “may well intensify the competition for investment”, according to Scott McCubbin, EY UK IPO leader, and to stand out, companies will need early preparation and profile raising [City A.M.]. To protect London’s competitiveness in attracting high-growth listings, the London Stock Exchange has joined City and business groups in calling for relaxation of rules that demand start-ups to sell at least 25% of their company in a listing and the adoption of dual class share structures to attract fast-growth companies [Financial Times ].
Keep a glass half full: Lockdowns landed a major “blow to the UK leisure industry” writes Anna Barnfather at Liberum. 2020 left pubs and restaurants losing £200m a day [The Daily Telegraph], positioning many on the brink of collapse, according to UKHospitality. Whilst equity placings and restructurings have been widespread, businesses urgently require further investment and VAT and rates support if Britain’s third largest sector can fulfil its potential in helping to drive wider economic recovery [Propel]. Liberum forecasts up to 30% of industry supply may “permanently exit the market”, particularly independent operators with less financial backing to survive further lockdowns. More consolidation and intervention from the well-capitalised operators remains likely following Marston’s (who has rejected its third takeover offer by Platinum Equity Advisors this week) acquisition of 156 Brains pubs [BBC News], former Greene King boss Rooney Anand securing £200m in new equity, with a further £300m in debt funding expected to be raised to invest in the struggling sector [The Daily Telegraph] and JD Wetherspoons’ raising of £93.7m to buy struggling pubs [The Daily Telegraph]. Further to this, Berenberg expect ‘simplification’ in the hospitality space for 2021 with simplified menus, fewer dish counts and easier meals to cook whilst also flagging that the use of ordering through your mobile app might be here to stay. Berenberg note that for segments such as food-to-go which have been “severely negatively affected”, we will likely see competition ease with acquisitions and new business opportunities emerging from the smaller stragglers.
Cheers to Shore Capital who predict that trading should “recover quickly following easing of pandemic control restrictions” due to pent up demand & vaccine rollout with a full recovery of most listed pub operators by 2024. However with the flee of foreign workers following Brexit will the sector have the manpower to support a full recovery? [Financial Times]
A new dawn for our high streets: As we reflect on January’s high street raids, many have been asking what the high street could and should look like in the year/s ahead? ASOS’ winning bid for Topshop, Topman and Miss Selfridge proved brands are still considered an appealing asset, however Sam Chambers took an acutely critical view of how, “after years of slowly squeezing high street chains, online fashion giants Asos and Boohoo are finishing them off” [The Sunday Times]. Berenberg has flagged that a less crowded high street is “a double-edged sword for the remaining players” attracting less footfall “meaning many of the remaining stores lose out too”.
Concern for the high street’s future is driving calls for government intervention; Mary Portas said that without immediate action, “we face a future with hollowed-out streets and no places left for communities to come together” [The Times], and the FT’s Lex column argued “the government must play its part in slowing the retail shake-out” by reforming the business rates system [FT Lex]. Ian Geddes, Head of Retail at Deloitte, suggests that this trend is likely to prompt a wider reinvention of retail, with online shopping staying popular post-pandemic but the role of physical stores remaining competitive, and overall heralding a “revived and more relevant high street longer-term” [Sky News].
Perhaps our new High Street will be reinvented to reflect the priorities of our local communities? This may seem optimistic but it’s not out of the question according to Alistair Osborne, calling on councils to “adapt shop space for something more useful: housing, teaching centres, arts, sports or entertainment venues” [The Times]. Sam Chambers meanwhile cautions that any such regeneration project “needs a level of public and private investment that is hard to muster for the poorer parts of the UK” [The Sunday Times]. Either way, stakeholders around the nation are putting their heads together to decide on sustainable replacements for the likes of Debenhams or, as analysts at Shore Capital put it, how “local government, society and business can build retailing back better.”
Building on this, some leisure firms are looking to repurpose closed retail sites with bowling alleys, go-karting tracks and cinemas. Demonstrating a vote of confidence in the leisure sector post-Covid, Gravity Active Entertainment explains that these plans offer “a solution to landlords who are concerned about how to fill the space and attracting more footfall to shopping centres” [Evening Standard].
Bluer skies ahead (for some): The travel sector has been one of the hardest hit by COVID-19, with the grounding of fleets, opening and closing of travel corridors, and now a travel hiatus. In the wake of the vaccine rollout, experts have predicted a gradual return of some long-haul destinations from mid-summer and a “normal” state of travel by early 2022 [The Independent]. The International Air Transport Association forecasted that passenger traffic may only improve by 13% in 2021 compared with last year in a worst case scenario [Bloomberg]. Anticipation is more positive for firms servicing older demographics – such as Saga – as these groups are first in line for vaccinations [Travel Weekly]. Although VisitBritain, the national tourist authority, is still expecting a shortfall of almost £30bn in domestic tourism spending in 2021 versus 2019, demand and prices for UK staycations are already surging, amidst continuing foreign travel uncertainty [Financial Times]. Looking at silver linings, Berenberg points out the National Express has picked up contracts from other failed businesses and Trainline has seen a “significant increase in online penetration” since the pandemic began.
Green shoots: The pandemic has accelerated the Environmental Social and Governance (ESG) agenda and “businesses are likely to be judged – both by stakeholders and consumers – on how they address these issues” [Retail Week]. Investors and regulators are set to take a firmer stance in 2021; The Investor Forum has called on the UK Government to implement mandatory annual votes on companies’ climate strategies [Reuters] and UK regulators have committed to action against greenwashing [Financial Times]. Peel Hunt highlight how “many companies have strong [ESG] stories to tell and most are investing more time and capital into improving their performances” in a note published this week.
For F&B, The Grocer predicts a move towards “eco-aisles” in grocers this year, “reminiscent of the shift to transparency in nutritional info over the last decade” and that “regenerative farming will help save the planet”. Meanwhile, health and sustainability trends are driving a surge in acquisitions for major brands, such as Hershey’s recent healthy alternative start-ups and partnerships between Pepsico and Beyond Meat [Financial Times]. Investec point out that with Brexit “likely to take up less of Government time and hopefully COVID will follow suit”, legislation which may come onto the radar include improving the health of the nation and the Deposit Return Scheme.
Social issues, which have been historically undervalued compared with environment and governance concerns, have now taken centre-stage; investors are demanding improvements in business’s approaches to ensuring diversity, inclusivity, health and wellbeing amongst their employees and customers [Bloomberg Green]. Might we see moves afoot in reporting standards this year? For investors to take any ESG claims seriously, they say ESG metrics need to be incorporated into business’s accounting [Financial Times].
The UK’s post-Brexit situation may present opportunities for more ethical or sustainable sourcing. The Guardian notes a likely move towards more British manufacturing across food and fashion. Albeit, as a 2020 exposé of Leicester factories made clear, British-made is not a guarantee of better conditions. Boohoo’s progress here has the potential to “be a force for good in Leicester, improving the whole industry with it,” hopes Jim Armitage [Evening Standard]. Similarly, Business of Fashion is optimistic that retailers’ initial “easy fixes” that capture consumer interest will act as a “gateway drug” towards more impactful operational improvements. We expect, coupled with consumers’ focus on value-for-money, more embracing of the circular economy; Ikea is rolling out a spare parts service [Financial Times] and government attention has returned to the EU “right to repair” regulation with MPs saying retailers should take more responsibility for repairs, either collecting electronic waste from customers or ensuring products can be repaired easily by consumers at home [Charged Retail].
What do you think?
Without a crystal ball we can’t know for sure what 2021 holds but we’d love to know your predictions!
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