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A Christmas cracker?

22.10.07 Alison Clements

An economic storm appears to be brewing over the high street and just in time to threaten the retail success of Christmas 2007. Many economists and analysts believe that higher interest rates, troubled banks reining in their lending, and diminished disposable incomes will stunt spending dramatically in November and December this year.

David Stoddart, retail analyst at investment bank Landsbanki Securities, says: "There are major reservations across the whole of retail. We just don’t know how buoyant consumers will feel. It’s not that consumers are showing signs of wanting to slow down, but if you can’t get a loan or your credit card company is clamping down on what they’ll lend, and your fixed-rate mortgage deal suddenly comes to an end and payments go up, you’re not going to be having a wild time this Christmas."

Last year’s late reprieve, when dire autumn sales were followed by a perky December, cannot be relied on this Christmas, says Nick Gladding, lead analyst at Verdict Research, a company which carries out retail research and analysis. "Consumers will be really feeling the pinch by Christmas. The savings ratio is extremely low now, meaning people don’t have money to spare, and that will have an impact in the shops."

One theory is that book sales will not be affected by cautious Christmas spending because they are a low-value product, but this view is not shared by everyone. "Books are often an impulse purchase at Christmas and if punters aren’t out in the shops in the usual numbers, they won’t be popping into Waterstone’s or Borders for those last-minute presents," says one analyst.

And some believe it will not just be the high street that is affected. Gladding believes a rising wave of consumer caution will push supermarkets further down the discounting route in the coming weeks, knowing their customers are watching the pennies. "The supermarkets may not offer a huge range, but they will have the top titles and will go all out for selling at the best possible prices," he says. "This, of course, puts pressure on book specialists and independents."

Richard Ratner from investment bank Seymour Pierce was accused of over-dramatising the retail situation in the run-up to last Christmas, which he predicted would be the worst for 25 years. He asserts that his concern last year and this is about the poor margins being achieved, rather than sales. "The amount of discounting going on is the problem, and it’s bound to happen again this year. Sales always pick up just before Christmas, but the crucial question is: what margins are being achieved?" Price pressure from the supermarkets and online has led W H Smith, Waterstone’s and Borders to pursue big seasonal price promotions in recent years, and 2007 is likely to bring more of the same as the non-traditional sales channels storm onward.

Online majority

Online Christmas shopping, which is often considered a potentially cheaper and certainly more convenient alternative to the crowded shops and cold winter weather, is increasingly appealing to consumers. More than half of UK households (51%) now have a broadband connection—up from 40% last year according to the IMRG (Interactive Media in Retail Group), an organisation which represents e-retail. This will mean faster, more efficient online shopping this festive period, says the group’s chief executive James Roper. "Christmas shopping online was worth £7.6bn last year and, of course, there will be a massive increase on that figure for 2007. We’re expecting well over 55% growth."

Amazon.co.uk had its best Christmas ever last year, with around 750,000 orders placed during its busiest day—a rate of almost nine orders per second. Waterstones.com also reported "excellent progress" with "approximately one million visitors in December 2006".

The performance of Waterstones.com will be watched particularly closely this Christmas, with the book market eager to see whether the year-old site is beginning to capture significant sales for the retailer. Although unlikely to put a serious dent in the powerhouse that is Amazon.co.uk this year, Waterstone’s expects 9% of its sales to come through its online store by 2010.

The success of Waterstone’s itself will also be under scrutiny, with analysts and the wider book industry wanting to see whether the Ottakar’s takeover was worthwhile. Last year Waterstone’s stores suffered a like-for-like sales decline of 2.7% in the 10 weeks to 6th January 2007. At the time the HMV group cited the distractions of major change at Waterstone’s and insisted that despite a "highly promotional book market . . . margins were well maintained". While improvement on last year should be achievable, one analyst says: "Supermarkets are hammering Waterstone’s on price. Last year Waterstone’s had the excuse of the Ottakar’s integration and the launch of Waterstones.com to fall back on. This year it doesn’t."

Martin Davies, director of retail planning in Experian’s business strategies division, says retailers need to plan their Christmas marketing around 21st-century consumer behaviour. Taking a multi-channel approach will therefore be increasingly important in future years. "Traditional Christmas shopping when people go into town every Saturday for six weeks before Christmas barely happens today," says Davies. Nowadays, the number of places you can buy a book has obviously increased. It is possible to make purchases in supermarkets, petrol stations or on the internet, as well as in specialist shops. "The barriers for traditional gifting have eroded considerably and this has altered footfall into stores, though not necessarily reduced sales for retailers taking a multi-channel approach. Retailers must understand the different shopper occasions they are catering for and tailor their marketing accordingly," he adds.

Despite this evolving and economically-unstable landscape, booksellers are surprisingly merry about the forthcoming festive period. The quality of the product on offer is, they hope, the season’s saviour.

Quality offerings

Bookshops are already seeing hearty appetites for Jamie Oliver’s Jamie at Home, Nigella Lawson’s Nigella Express, and a host of other food and drink titles. Michael Palin’s New Europe is widely tipped for success and, in fiction, Patricia Cornwell’s The Book of the Dead, Kate Mosse’s Sepulchre and Martina Cole’s Faces are all expected to sell well.

The celebrity autobiography market is also flooded with potential bestsellers, from Russell Brand’s The Autobiography to Sir Bobby Charlton’s My Manchester United Years and the Sharon Osbourne sequel, Survivor: My Story—The Next Chapter. Karl Pilkington’s Happy Slapped by a Jellyfish could be the quirky humour hit of the year.

Gerry Berkley, trading manager for books and games at Woolworths, is upbeat: "Signs are very good for the book market this Christmas," he says. "We have plans to focus heavily on the sector and, with a new dedicated buyer on board, we believe we are set up to make the most of what we expect to be a buoyant market. We expect big releases such as Sharon Osbourne, Jeremy Clarkson and Lewis Hamilton to do well at Woolies over the gifting period."

Stephanie Bateson, book buyer at Asda, is also positive about the 2007 Christmas outlook. "Things are a lot safer this year because we have trusted brands to focus on—Jamie, Nigella, Sharon Osbourne. There will be guaranteed winners. Maybe the downside of reduced risk-taking is that there won’t be a massive surprise hit as with Peter Kay last year."

Independents remain similarly upbeat, refusing to be beaten by the price-obsessed supermarkets and online retailers. In retaliation, they are promoting their high service levels, knowledge and in-store ambience. Patrick Neale, co-owner of award-winning bookshop Jaffé & Neale in Chipping Norton, says: "I think it’s going to be an amazing Christmas. Of course there will be people buying their books from Amazon, Tesco and Sainsbury’s. We just need to concentrate on our valued customers who don’t, and make sure we give them the range, attention and service they expect."

He says that a festive feel in-store, a personal shopper service to help people select the ideal gift for friends and family, and seven-day opening will ensure healthy trading in the pre-Christmas run-up. "The titles are looking good. Jamie is selling incredibly well and we are having success with the Clarissa Dickson Wright autobiography [Spilling the Beans]," he says. "Luckily we don’t focus too much on celebrity biographies, which can be a minefield, but my one concern is the plethora of releases that are trying to emulate the success of last year’s hits The Dangerous Book For Boys and Why Don’t Penguins’ Feet Freeze? It’s going to be hard to separate the winners from the losers."

Food for thought

Sally Hughes, manager of Books for Cooks, a bookshop in London’s Notting Hill, has some concerns about Christmas, but feels the shop is largely in a good position to capitalise on the wide range of celebrity chef and speciality food books around. "We have been affected by consumers moving to online shopping and because lots of the headline books this year—Nigella, Jamie, Nigel Slater—will be discounted, we will lose out. But we are insulated to a certain degree because, being specialists, we have customers who genuinely seek our advice for more thoughtful selections for gifts." The shop can also create a seasonal buzz around its in-store café, where owner Eric Treuille cooks recipes from the books on sale on a daily basis. "Eric also holds special evening classes with Christmas themes, such as vegetarian Christmas cooking and a very popular champagne, truffle and foie gras-tasting [session]," says Hughes.

Clearly all book retailers face tough challenges this year, but it remains to be seen whether a host of strong titles gives them enough reason for festive cheer.

Since this piece was researched, Richard Ratner has tragically died of a heart attack. He was one of the leading City analysts of his generation, and we have extended our condolences to his family.

Retail Flagship Feature Alison Clements Christmas

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