Lessons from Christmas 2023: Invest in data, people and product
The tough conditions of Christmas 2023 look set to continue in 2024, says Richard Hyman, partner at consultancy Thought Provoking Consulting.
For most clothing retailers, Christmas 2023 was one to forget. But in reality, the writing was already on the wall, and it was never going to be very good. Retail at Christmas is never dramatically different from the trading pattern already set in the months leading up to December. Nevertheless, November and Black Friday have introduced a deeply unhelpful variable. Giving shoppers the chance to do their Christmas shopping early at a discount is always going to claw spend forward when money is tight and as we all know, it’s very tight. So, what happened?
As ever when one is measuring using year-on-year numbers, last year’s figures (2022) are just as important as this year’s (2023). And it is worth remembering that last year was still very much in the recovery room. Some large sales increases were being recorded by everyone because the comparatives were against stores that spent much of 2021 closed. This recovery was still happening in 2022. So the return to what was (in theory) more normal trading in 2023 has involved comparisons against a period which was totally extraordinary.
Pervasive inflation
Against this volatile background has come inflation, pervading the entire supply chain from beginning to end. It is impossible to overstate the pressure this has placed on the apparel market. Clothing has been hit harder than any other retail sector because for the previous twenty years or so, there was no price inflation to speak of. This was the result of several factors, including progressively more sourcing from lower cost producers, the growth in share of the value market forcing prices down across the board, and the growth of online, which is an inherently price-driven channel.
Consumers became hooked on cheap clothing. Over several decades of flat selling prices, clothing has looked increasingly better value as everything else became more expensive. When this suddenly went into a sharp reverse gear, value for money began to be questioned. In addition, increased working from home has made it so much easier for shoppers to make do with already very full wardrobes.
Strong performers
Naturally, some businesses have found it more difficult to deal with these choppy waters than others. Christmas was very tough but some managed to trade well and certainly outperform their key competitors. Next can always be relied upon to be a winner and has yet again delivered tremendous numbers. M&S is increasingly confirming that this time, the odd glimmer of positivity really is being turned into a recovery. Investment in better styling and fabrics is translating into a sustained improvement in trading performance. All Saints has reinterpreted its brand for a wider market without diluting its handwriting, and looks very good. And Reiss is undisputedly the premium high street brand with the best growth potential, carefully managing very solid expansion across all its channels. Meantime, Primark showed its UK business is far from mature, delivering further market share growth.
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Lessons for 2024
What lessons can be learned for the market at large and from these companies in particular? Demand for 2024 is going to continue to be soft. Don’t be fooled by fanciful talk about cost of living pressures easing. They might be at headline level, but most households are still dealing with massive hikes in the cost of energy, housing and food. The fact that the rate of increase has slowed does not remove the increase itself, but merely means it is rising more slowly. As a result, consumers will continue to be constrained, especially the under-35 cohort which is so critical in fashion. The slowdown in the rate of cost of living increases will take much longer to permeate the market and stimulate demand.
Forecasting critical
For companies, this trading climate presents a range of huge challenges. Getting better at forecasting is critical. The market has become vastly more dynamic and leadership teams need to more agile, more able to pivot and make decisions faster. Data science is no longer a nice to have: being able to frequently model a wide range of scenarios in order to make optimal changes is essential.
The quality of people is paramount, probably more than ever before. Going back to the retailers I highlighted, Lord Simon Wolfson (Next), Richard Price (M&S), Christos Angelides (Reiss), Paul Marchant (Primark) and Pete Wood (All Saints) all have the courage of their convictions to be pro-active. They understand that ultimately, it’s all about the product. Quality, design, price, optimising channel allocations, availability and sell-through. Investing in being best in class is key. These businesses will be among the relative few who remember Christmas 2023 fondly, and know it will have set them up for a rather better 2024 than most.