FEBRUARY 11, 2016
• We forecast only very modest growth of around 1% for UK Valentine’s Day retail spending this year. We expect growth to be suppressed by deflation in UK retail and by shopper caution, which was recently evidenced by weak VALENTINE’S Christmas spending. • Moreover, there are demanding comparatives from 2015, when Valentine’s Day fell on a Saturday. A Sunday Valentine’s Day gives UK consumers fewer DAY RETAIL hours to shop. • Based on our store visits this year, the Valentine’s PREVIEW Day winners are likely to include Debenhams, which has seized the opportunity to run special promotions, and John Lewis, which is offering a strong range of premium gifts. Grocery discounters will also gain share: Aldi, for example, is going big on Valentine’s Day, offering products that range from budget bouquets to low-price lingerie. • Our store visits also suggest that some other major UK retailers could put slightly more effort into courting shoppers—for instance, by offering them DEBORAH WEINSWIG specially sourced products and seasonal Executive Director – promotions. Store-based retailers must use Head of Global Retail & Technology seasonal events such as Valentine’s Day to pique Fung Business Intelligence Centre [email protected] shoppers’ interest, and thus encourage footfall and US: 646.839.7017 impulse purchases. HK: 852.6119.1779 CHN: 86.186.1420.3016
DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 1 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEBRUARY 11, 2016 UK VALENTINE’S DAY
RETAIL PREVIEW
THE OPPORTUNITIES ARE MORE IMPORTANT THAN A POUND VALUE Market research firms, trade bodies and PR agencies have but one true love: putting out press releases that place a pound value on holiday-related spending. For example, research agency Verdict Retail estimates that consumers in the UK will spend £980 million on Valentine’s Day this year. And last year, a survey by credit card firm Capital One concluded that total UK Valentine’s Day spending (including nonretail spending) reached £1.6 billion. British shoppers spend around £40 million on greetings cards alone for We expect total retail spending Valentine’s Day each year, according to the Greeting Card Association. And, on Valentine’s Day to rise only modestly in 2016—by around according to Horticulture Week, they spend around £262 million on flowers, 1% year over year. mostly red roses, which account for about two-thirds to three-quarters of Valentine’s Day flower purchases. But the absolute retail value of seasonal events such as Valentine’s Day is much less important than the market’s momentum and the ways retailers can use these events to drive footfall. In this report, we examine how these factors shape the opportunities for retailers. • We expect total retail spending on Valentine’s Day to rise only modestly in 2016—by around 1% year over year. Below, we outline our reasons for these low expectations. • Seasonal events provide opportunities to drive shoppers’ interest in stores, and to generate footfall and impulse purchases. Furthermore, Valentine’s Day specifically helps fill the retail lull between New Year’s and Easter. Later in this report, we highlight how some of the major retailers are using in-store promotions and merchandising to drive sales.
DEMANDING COMPARATIVES AND SHOPPER CAUTION LIKELY TO YIELD LOW GROWTH Total Valentine’s Day spending will be supported by February 14 falling on a A disappointing Christmas Sunday this year, but the Saturday timing of the holiday in 2015 makes for trading period, the weakening of demanding comparatives. Moreover, a disappointing Christmas trading retail sales growth through period, the weakening of retail sales growth through 2015, and entrenched 2015, and entrenched deflation deflation across food and nonfood retail all suggest that consumers are across food and nonfood retail spending cautiously. all suggest that consumers are spending cautiously. These factors inform our estimate for modest year-over-year growth in Valentine’s Day spending; we predict growth will be in the region of 1%. These are our estimates for 2016 Valentine’s Day retail spending growth by major channel:
DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 2 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEBRUARY 11, 2016
Figure 1. Estimated Year-over-Year Growth in Valentine’s Day Retail Spending, 2016
Grocery Stores Flat Internet Pure Plays 10.0% Department Stores 3.0% – 3.5% Others, Incl. Specialists 0.5% – 1.0% Total 1.0% Source: FBIC Global Retail & Technology
The grocery retail channel will The grocery retail channel will be broadly flat year over year, we estimate. be broadly flat year over year, Recent months have seen growth for the sector range from (1.5)% in we estimate. November 2015 to 0.8% in September 2015; in December (latest), total sector sales grew by 0.6%. The grocery sector is seeing entrenched deflation as a result of price wars and this will hit sector sales this Valentine’s Day: shoppers will be able to buy boxes of chocolates, cards and small-ticket gifts for less than they did last year. This grocery retail total conceals big differences in performance by channel. We expect hard discounters Aldi and Lidl to see aggregate Valentine’s Day sales rise by around 16%–18%, although their limited offerings mean they are minor players in the market. Convenience store formats will turn in low- single-digit growth, we estimate, while online sales by grocers will We expect department stores outperform and spending through big superstores and supermarkets from such as John Lewis, Debenhams nondiscount grocers will fall by around 3%-4%. and House of Fraser to be among the winners. We expect department stores such as John Lewis, Debenhams and House of Fraser to be among the winners. Each of these major retailers enjoyed a relatively strong Christmas, and we have seen engaging in-store ranging at John Lewis and promotions at Debenhams. (We do not consider Marks & Spencer (M&S) to be a department store; we consider it to be a specialist, in clothing and food.)
Valentine’s Day 2016 Display at John Lewis, Oxford Street, London Source: FBIC Global Retail & Technology
DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 3 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEBRUARY 11, 2016
Last year, John Lewis noted a Valentine’s Day increase in footfall across beauty and lingerie; in the week leading up to the holiday, its fashion sales were up 6% year over year, while premium beauty sales were up 7% and womenswear was up 12%. Specialists such as chocolate shops, florists and jewelers, which tend to be focused on product quality and the gifting experience, will enjoy a degree of immunity from the deflation in UK retail, and this should provide them opportunities to lift total sales year over year.
TOUGH COMPARATIVES FROM 2015
Last year saw a Saturday A weekend Valentine’s Day boosts spending, so the total retail value of Valentine’s Day, which provided holiday sales will be supported by February 14 falling on a Sunday this year: even longer hours to shop and couples will have time to purchase last-minute gifts, shop together and more opportunities to spend—and spend on activities such as dining out. But last year saw a Saturday that means the comparatives are Valentine’s Day, which provided even longer hours to shop and more especially demanding. opportunities to spend—and that means the comparatives are especially demanding.
The strong Valentine’s Day retail growth last year is borne out by figures from Barclaycard. In 2015, the company recorded a 280% year-over-year increase in sales at florists, a 30.5% increase in spending at restaurants, a 39% rise in jewelers’ sales, and growth of more than 50% at cosmetics stores Men plan to spend more than and confectioners. Against these impressive growth figures, retailers will do women: on average, male well if they turn in further positive growth this Valentine’s Day. shoppers plan to spend £28.19 What else can we expect this year? Barclaycard’s consumer research this year, while female shoppers regarding Valentine’s Day spending found that: expect to spend £18.96. • Men plan to spend more than women: on average, male shoppers plan to spend £28.19 this year, while female shoppers expect to spend £18.96. • This year, some 36% of shoppers plan to wait until Valentine’s Day itself to make their purchases. Given that trading laws allow larger stores to open for only six hours on Sundays in England and Wales (the rules differ in Scotland), retailers are likely to see strong demand on February 14. • One-third of consumers surveyed said they plan to spend up to £30 on Valentine’s Day this year; just 3% will spend over £100. • In total, 23% of consumers polled said they plan to shop online for Valentine’s Day gifts. Some 36%, meanwhile, plan to buy in stores. • Online shopping remains more skewed toward younger consumers: 36% of 18–24-year-olds surveyed plan to buy gifts online this year, compared to just 11% of those aged 55 or older.
DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 4 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEBRUARY 11, 2016
WHAT WE HAVE SEEN FROM RETAILERS Among the major retailers, John Lewis, Debenhams, Aldi and Asda have gone big on Valentine’s Day promotions this year. Department Stores John Lewis is a destination for gifting and, unlike some other department stores, it has a food and beverage offering. Its product mix means it is better equipped to serve Valentine’s Day demand than some of its rivals are. In the Oxford Street John Lewis store, we saw a surfeit of chocolates, candies and champagnes. Premium names abounded, including Hotel Chocolat, Charbonnel et Walker and Veuve Clicquot. In the beauty department, the retailer is using the event to market gift sets and fragrances, including major premium names such as Liz Earle and Jimmy Choo.
Valentine’s Day 2016 Display at John Lewis, Oxford Street, London | Source: FBIC Global Retail & Technology
Debenhams runs price promotions frequently, and Valentine’s Day offers plenty of discounting opportunities. In the run-up to February 14, the midmarket chain was offering 15% off selected lingerie, 15% off selected jewelry and watches, 20% off selected handbags, and £10 off selected fragrances. The retailer’s Oxford Street store is operating a flower shop until Mother’s Day in March, but even this department was discounting when we visited, offering £5 off a flower purchase of £25 or more.
Valentine’s Day 2016 Flower Shop Display and Window Display at Debenhams, Oxford Street, London | Source: FBIC Global Retail & Technology
DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 5 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEBRUARY 11, 2016
Valentine’s Day promotions were a bit lower key at more premium rival House of Fraser; we saw no significant promotions or special products evident in the store we visited. Selfridges routinely makes a shopping spectacle out of seasonal events, and Valentine’s Day is no exception. The upmarket store has some of the more impressive merchandising we saw this year, with Valentine’s Day featured in its beauty and gifting departments.
Valentine’s Day 2016 Display at Selfridges, Oxford Street, London | Source: FBIC Global Retail & Technology
Grocery Stores Budget-conscious shoppers have more choice than ever this year. The discount channel continues to grow in Britain and, as we noted above, fast- growing grocery discounters Aldi and Lidl are sure to gain share of Valentine’s Day spending. Aldi has gone big on the holiday this year, with a selection of items added into its weekly nonfood Special Buys range: it is selling greetings cards from 79 pence and soft toys and lingerie from £3.99. Aldi has gone big on the holiday Aldi is also hoping to win the affection of shoppers with cheap flowers. Its this year, with a selection of items added into its weekly floral range is priced from £2.50 and includes a special deal of 100 red roses nonfood Special Buys range. for £25.
Valentine’s Day 2016 Offers from Aldi | Source: Aldi.co.uk
DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 6 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEBRUARY 11, 2016
Hard-discount rival Lidl is offering a dozen roses starting at £3 and a luxury bouquet for £25. Its nonfood special deals, however, currently appear to include no specific Valentine’s Day offers. Nondiscount grocery retailers are major channels for seasonal shopping occasions such as Valentine’s Day. Asda is among those pushing the event heavily, promoting treat foods across grocery departments; beauty gift sets; apparel, including lingerie from £4; and general merchandise such as DVDs, games and beauty electricals.
Valentine’s Day 2016 Offers from Asda | Source: Asda.co.uk
Specialists Among specialist lingerie chains, Boux Avenue unveiled a 25% off deal on selected ranges, while Tezenis is offering an up-to-70%-off sale but no specific Valentine-themed promotions. Intimissimi retained its modesty, offering no major Valentine price promos. Among other specialists, pharmacy chain Boots was not pushing Valentine’s Day especially heavily in its beauty departments when we visited, but it was flagging up its price promise on fragrances. Finally, M&S was seeking to charm couples with its “Dine in for Two for £20” offer in its food halls, but its marketing in general merchandise looked distinctly minimal when we visited its stores.
KEY TAKEAWAYS: SEASONAL EVENTS PROVIDE RETAIL EXPERIENCES As e-commerce peels away functional shopping, store-based retail is becoming more about experience than ever. So, retailers can use seasonal events such as Valentine’s Day (and Halloween and Easter) to pique shoppers’ interest, and thus encourage footfall and impulse purchases. Our store visits this year suggest that some major UK retailers could put slightly more effort into their courting of shoppers—for instance, by offering them specially sourced products and seasonal promotions. Those playing a little hard to get this year included major names such as Boots and House of Fraser. When even hard-discount grocer Aldi is trying to woo Valentine’s Day shoppers, those retailers with a strong offering in traditional gifting categories must make themselves more attractive to shoppers checking out what is on offer.
DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 7 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEBRUARY 11, 2016
Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: 852 6119 1779 China: 86 186 1420 3016 [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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DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 8 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.