November Spending Drop Masks Retailer Discounting and Supply Chain Risk
TL;DR
- Black Friday footfall held steady year-on-year, but overall November spending dropped 7%, indicating consumers consolidated purchases into a short splurge rather than sustained spending.
- Inflation turning to deflation in fashion and furniture suggests significant retailer discounting to move inventory, signaling a challenging environment for non-food sectors.
- Retailers' caution on inventory and potential for supplier ripple effects mean struggling businesses can cause cascading financial impacts down the supply chain.
- A later Christmas on a Thursday offers retailers an extended trading week, potentially mitigating some of the post-Black Friday slowdown typically seen.
- Falling house prices and a subdued housing market reduce demand for new furniture and DIY purchases, impacting associated retail sectors.
- Economically inactive individuals returning to the workforce due to cost pressures may further complicate efforts to decrease the unemployment rate.
Deep Dive
Black Friday footfall held steady year-on-year, but this masked a significant consumer pullback in spending during November, with overall spending in towns and cities dropping 7%. This divergence indicates consumers are consolidating purchases into promotional periods rather than maintaining consistent spending, a trend that challenges retailers who rely on broader economic health. The subsequent impact on suppliers, as seen with a retailer's delayed payment for a 2018 project, highlights the systemic risk to the supply chain when retailers falter, especially in the post-Christmas period.
The economic environment is characterized by conflicting signals: while interest rates have decreased, unemployment is at a post-2021 high, particularly impacting university leavers. This economic pressure may be driving more people back into the workforce, potentially exacerbating unemployment figures and further squeezing household budgets. The expected 1.5% increase in December spending is now uncertain, with a more likely scenario being flat or declining sales compared to the previous year, a challenging outlook for retailers.
This difficult trading environment is reflected in category-specific inflation data. Clothing, footwear, and furniture are experiencing deflation, with prices dropping 0.6% and 0.3% respectively. This indicates significant discounting by retailers to move inventory, a strategy that may not be sustainable given rising cost bases and potentially lower consumer demand. The mild weather and a perceived reduction in large Christmas parties likely contribute to the lack of demand for seasonal clothing, while a cooling housing market dampens demand for new furniture.
The ripple effect of these economic pressures extends throughout the retail ecosystem. Profit warnings, like that from Card Factory, signal distress even in value-oriented sectors, likely due to high overheads relative to sales. The prolonged payment delays experienced by suppliers, even years after projects are completed, demonstrate the precarious financial position many smaller businesses find themselves in when their larger retail clients struggle. This suggests that while the immediate focus is on Christmas trading, the fallout for suppliers and employees could extend well into the new year, with potential bankruptcies and supply chain disruptions emerging in February and March. The January sales, often a consumer boon, may also be less impactful if retailers have proactively managed stock levels to avoid holding excess inventory.
Action Items
- Audit 3-5 key retail categories (e.g., fashion, furniture) for deflationary price trends to identify discounting strategies (ref: inflation data).
- Track supplier payment fallout: For 3-5 past retail clients, calculate average payment delay and recovery rate post-CVA to assess supplier risk.
- Measure inventory caution impact: Analyze 3-5 retailers' stock levels versus sales performance to understand inventory management effectiveness.
- Evaluate Black Friday footfall vs. November spending: For 3-5 retail segments, compare footfall increases against spending drops to assess consumer behavior shifts.
- Forecast December spending: Project December sales based on historical trends and current economic indicators (inflation, unemployment) for 3-5 retail types.
Key Quotes
"Black Friday on the day footfall data was saying that we were just down on last year Sensormatic came out with numbers that said footfall across all retail destinations was 3% lower than last year but the week from the Friday before to the Saturday which takes in Black Friday was 1.1% up on last year so it's it wasn't amazing fantastically I don't think but it sort of held its own Black Friday this year against last year which is quite good because last year November and Black Friday was quite strong."
Diane Wehrle explains that while Black Friday itself saw a slight decrease in footfall compared to the previous year, the broader Black Friday week experienced a modest increase. This indicates that the event is holding its ground against a strong prior year, which Wehrle notes is a positive sign.
"November as a whole as I'm sure won't be a surprise to anyone was really poor in terms of spending the Clare spending which is spending in towns and cities reported a drop year on year of 7% in November which is pretty significant it's the largest drop since July and it's great in the drop in October of 4.1% so we can see that consumers really reigned in their spending during November and of course we had all the the media coverage and the the budget jitters from what it will be in the budget what won't be in the budget and I think it really spooked a lot of consumers and it's forced it's forced them to hold back on on spending anything really and so they saved it all for Black Friday forced which is paid the day weekend and had a little splurge then but didn't do it in the preceding three weeks."
Diane Wehrle highlights that overall consumer spending in November was significantly down, with a 7% drop in towns and cities, the largest since July. Wehrle attributes this decline to consumer caution, likely influenced by media coverage and uncertainty surrounding budget announcements, leading people to postpone spending until Black Friday weekend.
"The trend over the last decade or so has been for trade to drop off post Black Friday and then get a sort of quite lull and then it it ramps up good news this year is Christmas is on Thursday so we've got virtually a whole trading week to to make some of that up which is good news not quite a trading week but quite a lot of it so that will help but typically Black Friday brings it all forward has done for years but it's better they spend it at some point in November rather than not at all so that's really the the trend in December I did actually forecast an increase in spending in December of one and a half percent purely because last December spending dropped by around about 7% it was really very poor having seen what's happening consumer wise I'm hesitant to think that that will happen actually and I'm not sure we will be seeing one and a half percent increase we may be seeing flatter than last year which is pretty pretty challenging for retailers."
Diane Wehrle discusses the typical post-Black Friday spending trend, noting that trade usually drops off before picking up again for Christmas. Wehrle suggests that the timing of Christmas on a Thursday this year might help retailers by extending the trading week, but expresses hesitation about forecasting a 1.5% spending increase in December, anticipating a flatter performance compared to the previous year, which would be challenging for retailers.
"Overall retail sales were 1.4% up which is the lowest increase for six months but most of that was driven by food and increasing food spending of 3% non food spending increased by just 0.1% which of course is way below inflation and non food in store spending actually dropped by 0.3% so and that includes all different channels it includes high street shopping centers retail parks etcetera so it's definitely been very challenging during this November but I don't think that will be surprised to anyone listening to this podcast."
Diane Wehrle presents data showing that overall retail sales in November saw a modest 1.4% increase, the lowest in six months, primarily driven by food spending. Wehrle points out that non-food spending increased by only 0.1%, significantly below inflation, and in-store non-food spending actually declined, indicating a challenging November for retailers across various channels.
"I mean Christmas generally is that time of year when for retailers who are finding it really challenging and have got huge cost pressures it is make or break and we don't typically see the fallout of that until mid January really so we may see some fallout from that but definitely they have been I mean card factory posted a profit warning and said that sales would be lower than they'd then they'd forecast due to low footfall I mean card factory are a value so if they're struggling and that will be partly because their overheads are so huge relative to sales so yeah I think it's going to be a this year I think is very challenging and it's it's you know it's the reverberation from the budget back in April and the impact on on retailers of increased cost base that's flowed through to employment."
Diane Wehrle emphasizes that for retailers facing significant cost pressures, the Christmas period is often a critical "make or break" time, with the full impact typically becoming apparent in mid-January. Wehrle cites Card Factory's profit warning due to low footfall as an example of struggles, suggesting that high overheads relative to sales contribute to these difficulties, and links these challenges to the lingering effects of the April budget and increased operational costs for retailers.
"The ripple effect is huge we're a small business right and and that's not easy to to take but it is what it is it's in the past you know but those companies do cvas and still trade others unfortunately don't make it through but it's not just them and their employees and customers that suffer it's all their suppliers and their suppliers suppliers so hopefully everybody has a great christmas I suspect they're just unfortunately won't be some that make it through February March the impact isn't that big news story of that brand it's that plus the ripple effect absolutely absolutely flows right through the chain and of course all the employees that will have been affected wouldn't have got necessarily got their salaries for that month."
Diane Wehrle illustrates the significant ripple effect of retailer failures, explaining that it impacts not only the company, its employees, and customers but also extends to all tiers of suppliers. Wehrle notes that even companies that undergo CVAs (Company Voluntary Arrangements) can still trade, but others do not survive, and the consequences for suppliers, who may not receive full payment or even any payment for their services, can be severe and long-lasting.
Resources
External Resources
Podcasts & Audio
- ReThink Productivity Podcast - Mentioned as the platform for the discussion.
- Basket & Barometer podcast - Mentioned as a related podcast broadening the conversation.
People
- Diane Wehrle - CEO at Rendle Intelligence and Insights, co-host of the Basket & Barometer podcast.
- Simon - Co-host of the Basket & Barometer podcast.
- Dave - Co-host of the ReThink Productivity Podcast.
Organizations & Institutions
- Sensormatic - Mentioned for providing footfall data.
- BRC (British Retail Consortium) - Mentioned for releasing numbers on overall retail sales.
- Card Factory - Mentioned for posting a profit warning due to low footfall.
Other Resources
- Black Friday - Discussed in relation to footfall data and consumer spending patterns.
- Cyber Monday - Mentioned as having blended into Black Friday.
- CVAs (Company Voluntary Arrangements) - Discussed as a process some struggling companies undertake.