2015 uk black friday preview by fbic retail tech · 2 ! november 23, 2015...

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November 23, 2015

DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved.

HOLIDAY 2015

2015 UK PREVIEW BLACK FRIDAY

D E B O R A H W E I N S W I G E x e c u t i v e D i r e c t o r – H e a d o f G l o b a l R e t a i l & T e c h n o l o g y F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9 C N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

After chaos in 2014, UK retailers are adopting one of three strategies ahead of Black Friday 2015.

1. Ensuring they are more prepared—for instance, with fulfillment capacity

2. Softening the effects by spacing out discounts over a longer period, instead of just one day

3. Pulling back on Black Friday promotions—Asda’s apparent withdrawal from the event is the most high profile of these

Much uncertainty surrounds how big Black Friday 2015 will be, not least because the day falls two days after the UK government’s Autumn Statement, which is expected to reveal cuts to state benefits and other government spending.

4 days to

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HOLIDAY 2015

2015 UK black Friday preview

UK BLACK FRIDAY 2015: SOFTER GROWTH EXPECTED AS RETAILERS ATTEMPT TO ROW BACK FROM CHAOS Although Black Friday remains a new event in the UK, it is already in danger of reaching its peak as a host of retailers attempt to row back on flash discounting. Further uncertainty is added this year by Black Friday falling just two days after the government’s Spending Review and Autumn Statement, which is expected to reveal new plans to cut welfare payments—so some consumers may not be in the mood to spend.

Yet, even if growth softens this year, we think Black Friday’s legacy is entrenching expectations of discounts among British shoppers—making UK retail more akin to its US counterpart, where discounts, coupons and sales are an everyday expectation.

BLACK FRIDAY IN THE UK: A (VERY) BRIEF HISTORY Amazon is credited with bringing Black Friday to the UK in 2010, but it was only in 2013 that the flash sales event scaled up, as Asda and John Lewis began taking part with fervor. In turn, 2014 saw a host of retailers, such as Argos and AO.com, participate in order to tap the media hysteria swirling around the event.

Apparel retailers have been among the laggards in joining Black Friday, likely for two reasons: Black Friday originally focused on electronics and other hardline goods rather than on clothing and footwear, and apparel stores are unlikely to want to entrench expectations of annual discounting on a particular date, given the flexibility they may require based on stock levels.

Source: John Lewis

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HOLIDAY 2015 However, in 2014, Marks & Spencer offered promotions under the Black Friday banner for the first time, Inditex offered 30% off everything at Zara, and River Island saw its website struggle under demand and some of its deliveries delayed. BHS, House of Fraser and Debenhams were among other major apparel retailers that took part—although all three regularly run promotions anyway.

Chaos in 2014 The result of Black Friday 2014 was widespread chaos, from fights in stores to websites crashing to delayed orders as retailers and couriers struggled to cope with demand. Capturing media headlines were the scuffles, fights and disorder as shoppers desperately attempted to snap up bargains, predominantly electronics. The grocery retailers won the most notoriety, with fracases in some Asda stores and 15 Tesco hypermarkets calling in police to deal with fraught shoppers. The disorder won these retailers pages of press coverage and disrupted regular in-‐store grocery shopping.

Crashing websites and logistics problems were common. Such was the demand that leading electronics chain Currys had to ask visitors to its site to queue, virtually, for up to an hour simply to get onto the site.

Source: Huffington Post Some deliveries were delayed or delivery wait times were extended at major retailers, including Amazon, Argos, Shop Direct, Debenhams, River Island and Marks & Spencer. Not all retailers were affected, though—home appliances pure play AO.com said it delivered all of its Black Friday 2014 orders on time.

Finally, retailers faced extra costs in product returns. At fashion retailer Oasis, for instance, return rates reached 50% after Black Friday 2014.

Source: Huffington Post/Bloomberg

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HOLIDAY 2015 Sales data and indications from retailers showed that the scale of Black Friday 2014 disrupted patterns of Christmas trading, pulling forward and concentrating much demand, resulting in softer growth in December. In short, following Black Friday 2014, there were signs of concern among UK retailers over what they had unleashed.

STRATEGIES FOR 2015 Responding to the unexpected surge in demand last year, retailers are adopting one of three strategies this year:

First, some retailers have promised to be more prepared. For instance, AO.com says it has increased warehouse space by 30,000 square feet and put 16% more vans on the road—though much of this is related to AO.com’s rapid growth, not just to investment in Black Friday fulfillment. At Tesco, hypermarkets are opening at 5 am on Black Friday, instead of being open for 24 hours, to allow in-‐store staff more time to prepare for bargain hunters.

Second, some are also seeking to soften the effect by spacing out discounts over a longer period. River Island will stretch its promotional period beyond just a single day this year, the company’s E-‐Commerce Logistics Manager, Sunil Bhudia, said at a Retail Week conference. Argos launched its Black Friday deals a week early. Its Black Friday Event lasts 12 days from Friday, November 20th through December 1st.

Finally, other retailers are simply scaling back on promotions to ease the pressure. Womenswear retailer Oasis’s promotions “won’t be near the scale of last year,” its Director of Digital, Briony Garbett, told a recent Retail Week conference. But the headline story so far has been Walmart-‐owned grocer Asda dropping out of Black Friday altogether apparently, although the company’s statement that it will “step away” and “step back” left a little room for flexibility. The company said its decision was driven by shopper “fatigue” and added, “Customers have told us loud and clear that they don’t want to be held hostage to a day or two of sales.”

1. BE MORE PREPARED

2. EXTENDED DAYS OF SALES

3. OPT OUT

“Customers have told us loud and clear that they don’t want to be held hostage to a day or two of sales.”

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HOLIDAY 2015 The in-‐store disruption seen last year and its negative impact on day-‐to-‐day grocery sales, as well as the negative media coverage it generated, are likely to have driven Asda’s decision.

But Not All Are Pulling Back Some stores, though, appear to have abandoned plans to scale back. Back in January, the Managing Director of department store John Lewis urged retailers to “play it down” this year and said, “My personal hope is that this is the high-‐water mark for Black Friday. I don’t think we can put the genie back in the bottle, but do we need to stoke that fire anymore? I personally hope not.” By November, this had changed to a promise that John Lewis’s Black Friday would be “bigger again this year.”

A large number of retailers are set to participate in Black Friday this year, from the familiar names, such as Amazon and Currys , to the less obvious, such as Inditex’s Massimo Dutti and Zara, and leisure retailer Halfords. For some retailers that participate, Black Friday can absorb regular promotional activity. Department store chain Debenhams, for instance, recently said that Black Friday falls within its otherwise-‐scheduled four-‐day Big Gift Event. Meanwhile, on Amazon.co.uk, daily deals and Black Friday offers are hard to distinguish, and deep discounts are an everyday event at electronics specialists such as Currys.

Source: Halfords

“BIGGER AGAIN THIS YEAR”

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HOLIDAY 2015 WILL CONSUMERS BE IN THE MOOD FOR SHOPPING? Black Friday this year falls two days after the UK government’s Spending Review and Autumn Statement. This will include revised plans to cut tax credits, an in-‐work benefit for low-‐paid workers, after earlier attempts to cut this benefit were defeated by the UK’s upper house, the House of Lords, in October. Given this defeat, the government’s plans to cut £4.4 billion a year from the tax-‐credits bill could be watered down—but this may be a temporary reprieve, and the government could well look for these savings elsewhere, including in other welfare payments.

The Autumn Statement is also likely to include some tax rises and significant cuts to the budgets of government departments.

As we noted in our recent report, UK Christmas 2015 Macro Update, cuts to state benefits, and the resulting uncertainty among many consumers about what their household budgets will look like next year, could dent Christmas spending a little. Given Black Friday falls just a couple of days after the Autumn Statement, it is reasonable to expect any welfare cuts to impact demand for spending on big-‐ticket goods, even at reduced prices.

OUR EXPECTATIONS FOR GROWTH

We forecast softer year-‐over-‐year growth for Black Friday when we published our Christmas forecast back in late October. This expectation has been cemented by the pulling back on discounting by some retailers since we made that forecast.

In 2014, growth in nonfood retailers’ sales spiked at 9% in November, before falling sharply back in December. While we expect a similar pattern this year, the November peak should be lower than last year’s, not least because overall nonfood retail growth has been weaker so far this year.

Figure 1. Nonfood Retailers’ Sales: YoY % Change

Dashed lines represent estimates. Source: Office for National Statistics/FBIC Global Retail & Technology

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2014 2015

SOFTER YOY GROWTH

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HOLIDAY 2015 Data just released for October 2015 shows that it was another weak month for nonfood retail. It is certainly possible that some consumers are holding off on bigger-‐ticket purchases until Black Friday, suggesting that British shoppers have come to expect discounting. It is equally possible that this weak growth could herald a weaker-‐than-‐expected Black Friday.

With the event remaining so new in the UK, with uncertainty over what the government will announce in its Spending Review and Autumn Statement, and with some retailers indicating they want to pull back from Black Friday, growth is difficult to forecast with certainty.

INGRAINING AN EXPECTATION OF DISCOUNTING For categories such as electronics, Black Friday simply builds on the tradition of deep (and often questionable) discounting. For retailers in this category, it can be a matter of just repackaging existing discounts. The real risks are for sectors such as apparel specialists and department stores, as Black Friday creeps beyond the hardline categories.

For retailers such as Marks & Spencer, the event adds another day of discounting to the calendar—and, unlike traditional sales periods, it gives the retailer no flexibility to change the timing depending on stock levels.

Crucially, Black Friday brings UK retail closer to the US model, where department stores and clothing retailers are on near-‐perpetual promotion, and where shoppers appear resistant to paying full price. Once shoppers become accustomed to frequent discounting, the path back to full-‐price sales can be challenging. Consumer expectations of below-‐retail prices are Black Friday’s longer-‐term and deeply negative consequences.

Source: Marks & Spencer

…DEEPLY NEGATIVE CONSEQUENCES

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November 23, 2015


HOLIDAY 2015

Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: 852.6119.1779 [email protected] Filippo Battaini [email protected]

Marie Driscoll, CFA [email protected]

John Harmon, CFA [email protected]

Aragorn Ho [email protected]

John Mercer [email protected]

Shoshana Pollack [email protected]

Kiril Popov [email protected]

Jing Wang [email protected]

Steven Winnick [email protected]

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2015 uk black friday preview by fbic retail tech · 2 ! november 23, 2015...

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