Sales slipped at Asda in the final three months of last year after customers cut back on spending in the run-up to Christmas.
The supermarket chain’s clothing line, George, was hit particularly hard. Its food business proved more resilient, with sales of its Extra Special range growing 5% year-on-year. However, this was not enough to stop a 1.3% fall in total sales, excluding petrol.
What’s the problem?
Physical retailers have been hit by a combination of changing habits, rising costs and broader economic problems as well as unseasonable weather. In the past few years names such as Mothercare, Karen Millen, Toys R Us, Maplin and Poundworld have disappeared from the UK high street as a result.
In terms of habits, shoppers are switching to buying online. Companies such as Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores.
At the same time, there is a move away from buying "stuff" as more people live in smaller homes and rent rather than buy. Uncertainty about the economy has also slowed the housing market and linked makeovers of homes. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
What help do retailers need?
Retailers with a high street presence want the government to change business rates to even up the tax burden with online players and to adapt more quickly to the rapidly changing market. They also want more political certainty as the potential for a no-deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs at the end of this year. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges, which they say put off shoppers.
What is the government doing?
In the December 2019 Queen's speech, the government announced plans for further reform of business rates including more frequent revaluations and increasing the discount for small retailers, pubs, cinemas and music venues to 50% from one-third. It has also set up a £675m "future high streets fund" under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
What is the outlook in 2020?
Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further potential Brexit wobbles to come – retailers are facing another tough year in 2020. The latest rise in the national minimum wage in April will also add to costs and hit profits. On the plus side, there are hopes of a boost to the housing market from increased certainty about Brexit after the general election. There are also signs that the shift to online shopping is slowing, potentially easing the pressure on high streets.
The update was included in a statement released by Asda’s parent company, Walmart, the world’s largest retailer. It confirms that all the big supermarket chains had a tough Christmas, which is their most important trading period.
Asda blamed challenging market conditions for the decline. “While customers were enthusiastic for Christmas, they were more mindful in their spending,” said Roger Burnley, the chief executive.
“Many chose to pare back gift lists and focus presents on kids rather than adults and extended family.” He said consumers remained “highly budget conscious”.
Online sales were a bright note, rising more than 10% on 2018 levels in the fourth quarter. The chain extended same-day delivery to 284 stores in the three-month period.
The company also trialled a one-hour click-and-collect service in two shops, and the service is to be rolled out across the entire network from this week.
Asda said its core food business showed more stability across the period, known as the “golden quarter” because it includes Black Friday and Christmas.
The grocer has started trials with new concession partners including Sushi Daily and Claire’s Accessories.
Last year, Asda and Sainsbury’s were forced to call off a £7bn merger after the plans were quashed by the Competition and Markets Authority. Walmart subsequently said that it was “seriously considering” a stock market flotation but warned the preparation could take years.