Shopping for Christmas 2016:

Retail Prospects

~ A Research Report for VoucherCodes.co.uk, part

of RetailMeNot

Report Prepared by Centre for Retail Research Limited, Nottingham September 2016

Research Report Shopping for Christmas 2016

Shopping for Christmas 2016: Retail Prospects

~ A Research Report for VoucherCodes.co.uk, part of RetailMeNot

Executive Brief

Report. This independent report into the prospects for Holiday or Christmas shopping in 2016 has been commissioned by RetailMeNot, the world’s leading marketplace of digital offers, and carried out by the Centre for Retail Research based in Nottingham, England.

Spending on shopping by consumers in the final weeks before Christmas is vital to most retailers’ profitability and many achieve 20% or more of their annual sales in this period. This is only so because, irrespective of background, the Holiday festivities, including celebrations and gift-giving, are an important and traditional part of social and family life.

Shopping for Christmas 2016, considers the Holiday/Christmas prospects for retailers and consumers in nine important countries: Belgium, France, Germany, Italy, The Netherlands, Spain, UK, the U.S.A. and Canada. Their combined populations are 699.2 million. We estimate that Christmas spending this year will be: £280.991 bn (€323.895 bn) in Europe; £492.246 bn ($635.96 bn) in the U.S.; and £38.470 bn ($49.84 bn) in Canada.

The 2016 report has taken account of major shifts in exchange rates and both the 2015 and the 2016 figures are based on current rates of exchange. This is to ensure that changes given in the report reflect only changes in the retail sector, and not currency movements. This does however mean that our figures are not comparable with last year’s figures.

Billion. Reflecting international use the term ‘billion’ means here one thousand million or 109.

Christmas. ‘Christmas’ and ‘Holiday’ are used interchangeably reflecting differences in usage patterns in North America and Europe. The ‘Holiday period’ in this report covers the six weeks of retail trading that normally starts in mid-November and continues to the end of December. For comparative purposes, we use the same yardstick in every country and therefore count U.S. retail spending from mid-November.

Methods. The Centre has carried out international research into Christmas spending for more than 15 years. Shopping patterns vary widely. For this study, we have drawn on published data from government statistical agencies, national economic/finance departments, consultancies, analysts and research groups. Telephone interviews with 50 major retailers have been carried out in each country and consumer interviews with 1,000 shoppers each in the U.S., the UK and Germany in order to gauge their likely intentions. The surveys were carried out in August- September 2016. Consumer attitudes can change because of political, geo-political, economic and local issues that can either improve expectations or worsen them. Where this is likely to have an effect we have noted this in the report.

Forecast. We forecast that Christmas spending in the final six weeks of this year will rise by 1.6% (1.8% in 2015) compared to last year or £280.991 (€323.895 billion) in Europe, and by 2.2% (2.9% in 2015) to £492.246 bn ($635.96 bn) in the U.S. Consumers in all countries have been affected by the relative slowdown in the global economy and the uncertain outlook, which explains the lower forecast growth for Christmas 2016

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Research Report Shopping for Christmas 2016

Online Christmas Spending. The online share of retail spending normally rises in the Holiday period in most countries, because a greater part of holiday spending is non-food and it is discretionary spending (non-food generally has a higher online share than food). Doing Holiday shopping on the internet may be regarded as more convenient, cheaper, and, for inexpert consumers buying products for others, it may be more accurate and less trouble to buy goods online rather than visit stores. On average we expect that the growth in online Christmas spending (as opposed to sales made in physical stores) will be lower than the previous two years, 15.0% in Europe and 11.8% in the U.S..

Total online sales are expected to be £52.95 bn (€61,01 bn) in Europe and £112.74 bn ($146.10 bn) in the U.S.. The strongest growth is likely in Spain, Italy and Canada where ecommerce currently has smaller market shares. These figures include cross-border trade.

The average market share of online retailers at Christmas, both pure-play specialists and the websites of store-based ‘multichannel’ retailers, is forecast to rise from an average of 13.9% in Europe to 18.8% in 2016 and from 20.9% to 22.9% in the U.S. Countries with the largest online market shares in Europe are the UK (27.0%), Germany (21.0%) and France (16.3%). Note that these figures exclude automobile fuel, vehicle sales, and the sales of restaurants, cafes and hot food.

This means that online retailing is growing faster than all-retail sales, causing sales in physical stores to fall slightly in every country except Canada. The average drop in sales in Europe was - 1.0% and -0.3% in the U.S.

Cross-border purchases. Online cross-border transactions for Christmas (defined as purchases by consumers from foreign websites or stores) are estimated to grow in Europe from 5.3% of online Christmas sales (total, £2,459 mn [€2,833 mn]) in 2015 to 6.0% in 2016 (£3,156 mn [€3,638 mn]), an increase of 28.4%. European countries with the highest rate of cross-border trade in Christmas 2016 are expected to be The Netherlands (17.4%), Belgium (9.8%) and Germany (8.0%). Canadian consumers purchased 8.6% of their online requirements from other countries, mostly the U.S.. mCommerce Growth. Mobile eCommerce (mCommerce) is increasing its share of online sales, reflecting both the increased availability of smartphones and tablets and the efforts of hitherto store-based retailers to create multi-channel or omnichannel systems to allow consumers to research, browse, compare and purchase in multiple ways. Mobile transactions are expected to grow from 25.6% (£13.56 bn [€15.64 bn]) of online European retail sales to 37.5% (£21.37 bn [€24.63 bn]) in 2016, an increase of 57.5%. In the U.S., mobile will expand from 33.6% (£33.88 bn [$43.91 bn in 2015) to 43.9% (£49.49 bn [$64.14 bn), a rise of 46.1%.

The highest mobile shares in Christmas spending are forecast to be in the U.S. (43.9%), Germany (43.1%) and the UK (42.3%).

Tablets are expected to achieve a European mean by country of 43.2% of mCommerce trade this Christmas in Europe and 43.7% in the U.S. Tablets are increasingly used when buying apparel, homewares, furniture and computer hardware, but smartphones for entertainment, films and books. They are more likely to be used at home or travelling and are increasingly seen as substitutes for desktop PCs and laptops. The introduction of mini-tablets and large-screen smartphones indicates that functional convergence may reduce the distinctions between tablets and smartphones.

Christmas Spending per Household. Average household (family) spending is forecast to rise to £540.42 (€622.57) in Europe (£531.26 [€612.00] in 2015) and £1,022.86 ($1,325.62) in the U.S. 3

Research Report Shopping for Christmas 2016

(last year, £1,000.84 ($1,296.86). In Europe this spending consisted of: gifts - £305.00 (€351.96); food and drink - £169.21 (€194.93); decorations - £19.14 (€22.05); and holiday-related travel £47.07 (€54.23). As before, U.S. households (£1,022.86 [$1,325.62] per household) outspent those of other countries, followed by Canada (£859.81 [$1,114.86]), the UK (£809.97) and Germany (£616.54 [€710.38]).

Holiday Gift Spending per Person. Spending on gifts per person is expected to rise to £157.82 (€182.01) in Europe (£154.64 [€178.80] last year). The figures vary greatly by country, with the UK at £240.41, the U.S. £212.95 ($276.01) and Canada £211.88 ($256.41). Once again, these are averages of spending by the entire population and not simply by members of households with adolescent children. Gifts of money, vouchers, gift cards/token, and cheques represented 9.6% of all gifts in Europe. Key areas of spending in Europe are: clothing and footwear, 23.9%; toys, 19.6%; and consumer electronics, 19.0%. Other categories were: cosmetics, 8.9%; books, films entertainment, 7.1%; jewellery, 7.1%; confectionary and alcohol (as a gift), 4.6%; and other, 0.2%.

Key Dates for Christmas Shopping. Online retailing and bricks and mortar retailing have different trading peaks as a result of traditions, logistics and marketing considerations. Individual countries can have different trading peaks, for example in The Netherlands when Christmas gifts for children are purchased on S. Nicholas’ Eve, 5 December, rather than later in the December month which is more usual elsewhere.

- Key dates Online shopping. Cyber Monday falls this year on 28 November, which is well before any practical deadline for online deliveries. Cyber Monday is the key online date in the U.S. ($3.48 bn [£2.66 bn] sales forecast) and Canada (Can$147 mn forecast), as well as Cyber Monday in the UK (£1,157 mn [€1,333 mn] in 2016) and by Cyber Sunday in France (€250 mn [190 mn]). The U.S. Black Friday long weekend including Cyber Monday should produce total sales $8.514 bn (€7.567 bn]. Black Friday and the Black Friday/Cyber Monday weekend are growing in importance in Germany and France as online peaks. Cyber Monday sales in Germany are forecast to be €405 mn (£352 mn) in 2016 and €235 mn (£204 mn) in France. These figures include routine ecommerce sales and not simply those items that happen to be on promotion. Most countries surveyed now have a proportion of retailers offering online Black Friday and weekend promotions but they do not necessarily feature ‘Black Friday’ in any significant way yet. In Europe, we expect online Cyber Monday sales to total £1,904 mn (€2,193 mn) and the four days, Black Friday to Cyber Monday to provide £4,828 mn (€5,562 mn) of sales, an increase of 19.1% against 2015.

- Key dates Bricks and Mortar shopping. Offline, Black Friday has been an important shopping Day in the U.S., Canada and the UK, but a key offline date for spending is the Saturday before Christmas (Panic Saturday), which falls on 17 December this year. The effect will be diminished this year because there is a whole week left before Christmas. In the U.S. we expect 70 million customers to spend $10.7 bn (€9.5 bn), 12.2 mn in the UK to spend £0.93 bn (€0.96 bn), France (11 mn spending €1.02 bn), Italy (8.1 mn spending €0.75 bn) and Spain (7.0 mn spending €0.65 bn). The busiest shopping day in Canada is expected to be Friday 23 December. The Friday before Christmas (23 December), Frenzied Friday, is expected to be particularly busy this year in many countries with £894 mn (€1,030 mn) in the UK, €890 mn in France, €927 mn in Germany and $7.39 bn (€6.57 bn) in the U.S. In France, Saturday 24th is likely to be even busier with €930 mn sales.

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Research Report Shopping for Christmas 2016

Shopping for Christmas 2016: Retail Prospects ~ A Research Report for VoucherCodes.co.uk, part of RetailMeNot

List of Contents

Page

Executive Brief 1

List of Contents 5

Part One Methods and Issues 6

Part Two Christmas Retail Spending 2016: The Prospects 10

Part Three Christmas Spending 2016: Online, In-store, Mobiles and Tablets 26

Part Four Categories and Gifts 2016 34

Part Five Key Dates for Christmas Shopping and UK Sales 39

References 47

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Research Report Shopping for Christmas 2016

Shopping for Christmas 2016: Retail Prospects ~ A Research Report for VoucherCodes.co.uk, part of RetailMeNot

Part One Methods and Issues

Approach

Retail spending in the weeks before Christmas is the most important period of trading for retailers, both online and offline. UK retailers now term it ‘the golden quarter’. Retailers, particularly of specialist merchandise, will often take 20% or more of their sales and up to 40% of their profits in this period. Food and drink sales in the Christmas season are particularly important to supermarkets and other food retailers.

Customers too depend upon innovative, well-stocked retail stores and websites so that they can buy gifts for other people, clothing and apparel for the season, and food and drink to celebrate the Christmas both with their families and with others. And one should add, ‘at the right price’, because, since the recession, economic pressures have made consumers in all countries both more wary of pre-recession extravagance and more eager to shop around to obtain discounts and lower prices. The continued growth in most countries of online retailing and discount retailers is further evidence of this, driven in part by the urge for shoppers to obtain lower prices as well as by changes in consumer behaviour that came about during the recession. Competition from aggressive price-oriented traders, operating offline and online, has changed the structure of retailing in many countries and has helped to create a new norm of lower prices.

RetailMeNot, the world’s largest marketplace for digital offers, has commissioned research from the Centre for Retail Research into the prospects for the Christmas Holiday season 2016 in seven European countries, Canada and the U.S. The issues studied include: what increase in sales, if any, is likely to occur in the Christmas period; what will be the breakdown of spending in such categories as toys, clothing, gifts, travel, and food and drink; and how significant will online retailing be in these countries at Christmas. The research also identifies key dates in online and offline Christmas spending and considers the growing role of shopping using smartphones and tablets.

Changes from last year. In the last twelve months there have been significant changes in exchange rates for some of the countries surveyed in this report. It has always been the purpose of this report to show consumer spending and emerging trends in the Christmas retail market in every country accurately. To do this properly, the exchange rates we have used in this have been adjusted to reflect current currency values. This does not affect growth rates and values within every country, but it has a major bearing on comparisons between countries. A country where retail has zero growth but whose exchange rate has

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Research Report Shopping for Christmas 2016

appreciated (increased) against other countries by, say, 10% will seem to have a retail sector 10% bigger in comparison with other countries – even though there has been no growth at all.

This report uses current exchange rates. To prevent the need to interpret each figure by working out how much growth is real growth and how much is exchange rate fluctuation we have recalculated the Christmas 2015 figures using the same exchange rates.

This enables comparisons to be exchange-rate neutral, but does of course mean that comparisons with earlier years cannot easily be made. Naturally the figures in each country’s currency remain the same, but when converted into other currencies financial values have been amended to reflect the new rates of exchange. The percentages between 2015 and 2016 should remain the same. This naturally affects the UK, whose currency fell by around 10% following a referendum on continued EU membership, but also the U.S. and Canada whose currencies have grown in value compared to both sterling and the euro.

Population. The total population of the seven European countries was 347.9 mn (Table 1), the population of the U.S. population is 316.1 mn and Canada’s population is 35.2 mn, a combined total of 699.2 million. For comparison purposes the population estimates relate to the most recent full year for which estimates are available on a consistent basis for every country. Estimates made between national censuses tend to be unreliable. The population figures in Table 1 are based on estimates made by the relevant national statistical services, including INSEE, the ONS, the U.S. Census Bureau, Centraal Bureau voor de Statistiek, Istat and the Instituto Nationale de Estadistica. Some countries, including the U.S. and The Netherlands, publish a daily running population total based on previous census data and estimates of net births and deaths and migration. However these are, for all practical purposes, simply forecasts and are likely to be revised if and when further population censuses are next conducted. For the purposes of consistency the figures used here are those given for the full year 2014 or early 2015. As a result there may be a discrepancy between Table 1 and more recent figures. More recent figures are not published for every country. Individual country estimates have been cross-checked against those available from the World Bank.

Table 1 Countries Surveyed

Country Population* (m) 2014 UK 64.1 France 65.8 Germany 82.7 Italy 60.3 Spain 47.1 The Netherlands 16.8 Belgium 11.1 Totals 347.9 U.S. 316.1 Canada 35.2 [population: estimates – see text] 7

Research Report Shopping for Christmas 2016

‘Retail’ ‘Retail sales’ here means the sale of merchandise to the final consumer. It excludes the sale of automobiles, rentals, car parts, fuel, hospitality services such as restaurants, cafes and coffee shops, and as far as possible sales tax or VAT.

Definition of Christmas and ‘Holiday period’ In this report the Christmas or Holiday period is defined as all retail spending between mid- November and the end of December. Care should be taken when making comparisons with other researchers as their definitions of the Christmas period may differ.

No government statistical service in any of the countries studied in this report produces a report on Christmas retail spending or provides the statistical underpinning to determine such issues as the amount spent in the final six weeks of Christmas, the level of online Christmas spending, or the amount spent in discrete periods such as Cyber Monday or Black Friday. Hence estimates are the normal methods used to calculate these figures. In order to provide our own forecasts we have examined the estimates of other research or consultancy organisations and government statistics, interviewed major retailers in every country surveyed in order to cross-check our own estimates with their raw data, and interviewed consumers in the largest countries surveyed.

In North America the term ‘Christmas’ (in relation to shopping) has been replaced by ‘Holiday’ and covers a range of celebrations that occur in the final weeks of every year. In Europe the term ‘Holidays’ usually means the summer vacation. This report attempts to cover both European and North American terminology by using Christmas and Holidays interchangeably. This report deals solely with consumer choice and shopping intentions: the use of any particular term or phrase is purely denotive and is not intended to carry with it any political, social, economic or cultural implications.

Methods

This research draws on data from: o Government statistical sources, national retail federations, and research published by consultancies, analysts and researchers.

o Telephone interviews with 50 major retailers from each country (all types of business, both food and non-food), responsible for 20% or more of national retail spending, to provide insights into the Holiday spending period.

o Consumer interviews with 1,000 shoppers each in the U.S., the UK and Germany carried out in August and September 2016 in order to get an understanding of shopper likely trends and expectations. In addition CRR has been able to access two other confidential private studies of shopper intentions.

We found a very mixed picture. Compared to last year, there were concerns about a slowdown in economic growth, increased risks of instability from China’s lower growth 8

Research Report Shopping for Christmas 2016

rates and the Brexit outcome in the UK, and additional uncertainty as a result of national elections in several European countries and the U.S. National polls of consumer confidence show comparatively few shoppers being supremely optimistic about their future. International bodies such as the IMF and OECD forecast reduced growth in the second half of 2016 (ie the Christmas period) and lower growth in the whole of 2017: they are not forecasting a recession.

The Outlook

Although the outlook is more risky than this time last year, there has been positive growth in every country and we expect consumer spending will (in the seven European countries) grow by an average of 1.6% this Christmas (compared to 1.8% in 2015). U.S. consumer spending is forecast to rise by 2.2% and by 1.8% in Canada. If there is a major global upset, these estimates may prove to be on the high side, but we feel this is unlikely.

Analysis

The data provided by respondents has been analysed by Professor Joshua Bamfield and the consolidated results are provided in this report. Businesses responding to the questionnaire were promised confidentiality, both relating to the information they provided and the names of the companies which provided information.

Interpreting the results

The results of this study are provided in good faith. However this is not a 100% survey of the entire retail sector and every type of shopper in the countries that were surveyed. The samples used reflect companies of differing sizes and types of business and different categories of retail shopper and, as such, are a satisfactory cross-section of retail businesses and retail shoppers.

RetailMeNot operates the world's largest marketplace for digital offers. The company's websites enable consumers across the globe seeking to save money to find hundreds of thousands of digital coupons and offers from retailers and brands. There were more than 688 million consumer visits to its websites in the 12 months prior to 30 June 2016. The RetailMeNot portfolio of coupon and deal websites includes RetailMeNot.com, VoucherCodes.co.uk, Ma Reduc.com, Actiepagina.nl, deals2buy.com, Giftcard Zen and the French cashback service Poulpeo.

The Centre for Retail Research, based in Nottingham England, carries out independent research in a number of countries on customer spending trends, the changes in the retail marketplace, the growth of online retailing and the impact of technology on retail development in Europe and North America. The Centre has researched and reported on trends in Christmas forecasting for more than 15 years. The Centre's research and views are quoted widely on radio and TV and by major newspapers. This Report has been prepared by Professor J. A. N. Bamfield, the Centre’s Director.

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Research Report Shopping for Christmas 2016

Part Two Christmas Retail Spending 2016: The Prospects

The Importance of Christmas Spending

The weeks leading up to the Christmas Holidays are normally the most important trading period for retailers. In the U.S., the day after Thanksgiving, ‘Black Friday’ (when retailers can expect to start trading profitably [‘in the black’]), marks the formal start of its Holiday shopping season. There are other reasons given for use of the term ‘Black Friday’, including full traffic lock in Philadelphia, when the idea was first trialled.

The proportion of annual shopping carried out during the Holiday period varies from country to country, ranging from 12% to 28%. A classic Christmas shopping model can be seen in the UK (Figure 1), with annual peaks of spending between mid-November and the post-Christmas sales, after which consumer retail spending drops significantly until the following Easter.

Figure 1 UK Retail Sales Monthly 2003 to 2016 (not seasonally adjusted) 150.0

140.0

130.0

120.0

110.0

100.0

90.0

80.0

70.0

2005Jul 2014Jul 2003Jul 2004Jul 2006Jul 2007Jul 2008Jul 2009Jul 2010Jul 2011Jul 2012Jul 2013Jul 2015Jul 2016Jul

2010Jan 2004Jan 2005Jan 2006Jan 2007Jan 2008Jan 2009Jan 2011Jan 2012Jan 2013Jan 2014Jan 2015Jan 2016Jan 2003Jan

[source: data from the Office for National Statistics]

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Research Report Shopping for Christmas 2016

Christmas spending operates across several dimensions and participation varies amongst consumers. Some like to start purchasing gifts early, whilst others leave it till the last moment. There are national dimensions. Shoppers in some countries do not think much about Christmas until rather later than others. In Canada, for example, 34% of Canadian consumers start their Holiday shopping in October, as do 30% of U.S. consumers: however, 22% of UK consumers claimed to have completed 80% of their purchases as early as the end of November (econsultancy, 2014). Traditionally only 19% of French consumers start their Christmas spending before December (Ipsos MORI, 2013). Complaints that ‘Christmas starts earlier and earlier’ were heard in the UK as far back as the nineteenth century (Flanders, 2006), whilst in the U.S. the proportion of customers annoyed or very annoyed by holiday goods appearing instore before Hallowe’en has fallen from 71% (2014) to 63% (Heller, 2016). As early as the 1880s major department stores in Europe and the U.S. attempted to outshine one another in the art of Christmas window dressing (Hancock, 2014). In 2016 the Selfridges department store and Harrods in the UK opened their Christmas grottos on or before August for the use of global tourists, or so they claimed. In the U.S. the use of pre-Holiday ‘layaway’ programmes in September and the early marketing of new toy ranges may be diluting the intensity of Christmas shopping, but this is still the golden quarter.

Even those consumers who start researching and shopping early may still be buying products in December, so the window for influencing shopping intentions (or being influenced) is open for a long time. Much of the food and drink purchases for the Christmas celebrations December 25th and 26th and the pre-Christmas week tend to be done in the last few days before Christmas, causing a spike in sales that coincides with the Holiday spending of last-minute shoppers.

The ‘traditional’ pattern of retail spending in Europe and Canada has involved a steady build up in purchases leading to frantic activity in the week or fortnight before Christmas, followed by an intensive sales season occurring normally immediately after Christmas or in the New Year. In the UK, sales always started on New Year’s Day until about 18 years ago as more and more stores started their sales earlier and earlier, one result being that online sales start on Christmas Day (or, increasingly, Christmas Eve). The pattern is different in the U.S., where retailers in Autumn/Fall have peaks at Hallowe’en and Thanksgiving, prior to starting the Christmas season proper with ‘Black Friday’ sales on the day after Thanksgiving. Peak trading in The Netherlands occurs before St. Nicholas’ Eve, 5th December, which is the traditional date in that country when Sinterklaas brings presents for children that have been well behaved. Sales may start after St Nicholas’ Day or after Christmas, depending on how buoyant retail sales have been in November and early December.

The growth of online retailing has generated another peak in Christmas demand with Cyber Monday and Mega/Manic Monday being periods of heavy online purchases at the end of November and early December (depending on the precise day Christmas falls on in a particular year) designed to order goods in sufficient time for Christmas. These peaks have been accentuated by the fact that retailers in the U.S. generate an even higher volume of sales by exceptionally large discounts in these periods. The pattern of Black Friday and Cyber Monday are now features of the Canadian (Accenture, 2015) and UK retail calendars now as well as having some traction in France, Germany and elsewhere (Longhurst, 2014). 11

Research Report Shopping for Christmas 2016

Post-Christmas sales are also somewhat diminished as a result of discounting in the Christmas season (Accenture, 2014; Doward, 2014; Don, 2015; Klara, 2014), which would have been regarded a few years ago as an act of desperation by retailers in difficulties. The pattern of retail spending at Christmas is now very different from the traditional retail Christmas and no doubt it will change again in subsequent years.

Christmas Retail Spending Forecast

Christmas or Holiday spending in this report is defined as retail spending occurring between the middle of November until the end of December. Our forecast for Christmas spending in 2016 (compared with 2015) is given in Table 2. We expect Christmas spending to grow from a total of £276.358 bn (€318.554 bn) in Europe to £280.991 bn (€323.895 bn) in 2016, an increase of 1.6% compared to 1.8% growth last Christmas. U.S. holiday retail spending is expected to grow from £481.65 bn in 2015 to £492.246 bn in 2016, a rise of 2.2% compared to 2.9% last year. Canadian retail spending is likely to grow from £37.79 bn last year to £38.470 bn (+1.8%).

Please note that the totals for 2015 reflect the new currency values and may differ from those given in the 2015 report (where values are reported converted into a different currency). This does not change the rate of growth in each country or other percentages.

Table 2 Christmas Spending 2015 and Forecast for 2016

Change Change 2015- EUROS (billions) 2015 2016 2014-2015 2016 UK £76.118 £77.564 2.5% 1.9% France £57.21 £58.068 1.5% 1.5% Germany £64.33 £65.617 2.3% 2.0% Italy £36.71 £36.930 0.8% 0.6% Spain £22.23 £22.808 2.8% 2.6% Netherlands £11.09 £11.256 1.4% 1.5% Belgium £8.67 £8.748 1.3% 0.9% Totals £276.358 £280.991 1.8% 1.6% U.S. £481.65 £492.246 2.9% 2.2% Canada £37.790 £38.470 2.1% 1.8%

The nine countries surveyed are all at different points of development after the recession of 2007-2008 and the slow growth experienced in the early part of this decade. The retail sales growth expected for each country in Christmas 2016 is lower than last year for every country except The Netherlands (1.5% in 2016, +0.1% above last year’s growth).

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Research Report Shopping for Christmas 2016

Major Economic Challenges The internationally-recognised OECD published its September Interim Report which revised its earlier global forecasts, helpfully outlining the main reasons why the rate of economic growth had slowed in 2016 and would slow further in 2017 compared to forecast (OECD, 2016a). The OECD identified the reasons as:  weak growth in trade (and reluctance by major nations to commit to new trade agreements reducing trade restrictions);  the continued slowdown in Chinese growth (and possible recession);  the British decision to leave the EU (Brexit);  slow and unwilling investment by businesses; and  the low (sometimes negative) interest rates of Central Banks and long-term quantitative easing which it believes is distorting world financial markets (OECD, 2016a).

The World Trade Organisation (WTO) recently announced that its estimates of world trade growth in 2016 had been cut from 2.8% to 1.7% (Knowles, 2016).

U.S.A. Until recently, the U.S. has been comparatively unharmed by the negative trends elsewhere, but since 2016, quarter II, trends in consumer spending and employment there have been weaker than expected probably as a result of the global relative slowdown. Although the policy of the Federal Reserve is to abandon the policy of low interest rates, further increases will have to be dependent on improvements in the economy (Dean and Aldrick, 2016).

Canada. Earlier forecasts for Canada expected a faster growth rate in 2016, although its dependence on primary products (whose prices remain low but improving) led the OECD to reduce its forecast growth in 2016 by 0.5% to 1.2%

Slow-growth in China. The problem with ever-decreasing Chinese growth rates is unlikely to worsen significantly before Christmas is over, but it will be a problem for 2017. The OECD estimates Chinese growth in 2016 at 6.5%: it was above 13% in the early part of this decade. Slower growth in China has particularly affected the U.S. and German industrial output.

All these issues from Brexit to the Chinese are known and have been included in the revised estimates used by OECD and ourselves for this report. The major outstanding problem at present likely to affect Christmas spending is fears about the stability of Deutsche Bank, which (for some impenetrable reason) the IMF identified in summer as the current major threat to the financial system, and the repercussions for the global financial system were it to fail (Treanor, 2016). We assume that common sense will ensure either that its problems are resolved or that temporary help will be provided.

Prospects for the Eurozone and Brexit The experience of the Eurozone has been better than expected for most of 2016, although growth deteriorated in the second half of the year with the OECD reducing its growth estimate for 2016 by 0.1% down to 1.5% for all Eurozone countries. Slow growth in the Eurozone, along with Chinese problems, has limited the progress of Europe’s most dynamic

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Research Report Shopping for Christmas 2016

economy, Germany. Growth in Italy remains very low at 0.6% in 2016. However Spain continues to achieve satisfactory growth levels (2.8% is expected in 2016). Although growth in The Netherlands and Belgium is expected to be lower in 2016 than 2015, both economies are in much better shape than they were in 2013, but consumer spending in Belgium is very weak.

The UK. The remaining economy is the UK. We estimate that although there is some anxiety about its future, broadly speaking Christmas will be relatively unaffected. Taking account of this we have reduced retail growth in the UK over Christmas from 2.1% to 1.9%. The reasons are given below.

The outlook for the UK is seriously affected by Brexit, the ramifications of which the OECD saw as one of the main problems unsettling the world economy. It seems unlikely that the negative impacts of Brexit, whatever they are, will affect the UK economy by Christmas 2016. The UK remains a member of the EU and has not started (or been allowed to start) negotiations about leaving the EU. The external value of sterling has fallen by around 10%, and this has helped competitiveness, including tourist shopping and online retail. At this stage the devaluation is unlikely to produce substantial inflation, though there will be price rises (Lightfoot, 2016). There is some difficulty in interpreting economic data because analysts and commentators are divided about Brexit and interpret any piece of data with excessive optimism or pessimism based on the need to justify the position they took in the referendum. It is not the purpose of this report to argue either for or against Brexit, but to consider it in relation to Christmas spending.

Share prices fell rapidly after the result of the vote was announced and there was panic. Recovery was fairly rapid and levels are now above what they were in June 2016 (Table 2a). The FT100 is mainly an international list of giant companies with global operations: by 27 June it had fallen to 5982.2, but is now 6899.3, which is above its previous peak, of 6600.0 in June 2015. The FT250 consists mainly of UK companies and is a better measure of actual and expected UK performance. This also fell to 14967.9 after the Brexit vote but has now recovered its losses.

Table 2a Major UK Share Indices Date FT100 FT250 Notes 30-Sep-16 6899.3 17871.4 current levels 08-Sep-16 18193.3 recent peak FT250 12-Aug-16 6916.0 recent peak FT 100 27-Jun-16 5982.2 14967.9 post-Brexit low 02-Jun-15 6600.0 18220.3 major high 21-Apr-15 7062.9 previous peak

[source: London Stock Exchange, retrieved 1 October 2016, http://www.londonstockexchange.com/ exchange/prices-and-markets/stocks/indices/summary/summary-indices.html?index=MCX]

The Bank of England cut the Bank rate after the vote to 0.25%, although this has also weakened demand for sterling (ie worsened the exchange rate). Although a further cut in 14

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interest rates was expected by some commentators before Christmas, this now seems unlikely. The Chancellor of the Exchequer is likely to put forward an expansionary Autumn budget, creating higher consumer demand and greater investment in utilities, housing and transport (Lightfoot, 2016)

The sense of crisis produced by the narrow Brexit victory in June was followed by the prompt resignation of the Prime Minister and expectations of a long summer of drift while the Conservatives chose a new leader. This anxiety was brought to a rapid end when all the other candidates stood down in favour of Theresa May as Prime Minister.

Consumer confidence in the UK dropped rapidly after Brexit. But the GfK measure of consumer confidence has now recovered to its pre-Brexit position, although full details have not yet been published (Retail Bulletin, 2016).

There are likely to be substantial long-term repercussions for the UK as a result of Brexit, but, for the present, consumer spending is variable but good, economic growth is continuing rather faster than the Eurozone or the EU as a whole, and fears of the widely- threatened Brexit recession have been replaced instead by expectations of slower growth. Even the OECD, which along with the IMF predicted a long recession after Brexit, has now marked down its estimated UK growth in 2017 from 2.0% to 1.0%, which would certainly be a poor result, but is obviously rather better than the previous forecast of a recession.

We are not arguing that Brexit is either good or bad, but simply that it will not have much effect on Christmas spending in the UK. Our view (in January 2016) was the UK economy would slow anyway in the second half of 2016 and have lower growth in 2017, so we have been rather more pessimistic than other observers. Our UK forecast for 2017 is economic growth of 1.5% (down 0.2% on our forecast at the beginning of 2016).

Growth Prospects in 2015-2016

Table 3 (based on May and September 2016 data from the OECD) shows the different experiences of countries and demonstrates a considerable variation in economic performance. It can be seen that inflation remains low although there is some increase in the U.S., Canada and Belgium but the levels are too low to require policy changes.

Unemployment levels have continued to fall slowly and in the U.S. reached 5% in 2016. Consumer spending (only some of which is retail) for the whole year is slightly down compared to last year, in most countries apart from France.

Table 4 shows the actual and expected growth rates of GDP in these countries. The Table uses OECD data published in 2016, updated in September for the largest countries. Naturally the 2016 figures benefit from the fact that the forecasts have been made in September, although in most countries data would only be available for the first six months of the year and subject to revision. They show results similar to those given previously in this chapter.

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Table 3 Rates of Growth in Consumer Spending, Unemployment and Inflation

Consumer Spending* Unemployment Inflation 2014 2015 2016 2014 2015 2016 2014 2015 2016 USA 2.6% 3.1% 2.7% 6.5% 5.1% 5.0% 1.6% 0.1% 1.1% Canada 2.5% 1.9% 1.7% 6.9% 6.7% 7.1% 1.9% 1.1% 1.7% Euro Area 1.0% 1.5% 1.0% 11.7% 10.9% 10.2% 0.4% 0.0% 0.2% UK 3.0% 2.7% 2.1% 6.9% 5.5% 5.1% 1.5% 0.1% 0.4% France 0.7% 1.4% 1.9% 9.9% 10.4% 9.8% 1.0% 0.6% 0.5% Germany 2.2% 1.9% 1.8% 5.0% 6.4% 4.4% 1.1% 1.1% 1.1% Italy 0.3% 0.9% 1.3% 12.8% 12.0% 11.3% 0.2% 0.1% 0.2% Spain -0.1% 3.1% 3.1% 25.4% 22.2% 19.8% -0.2% -0.6% -0.5% NL 0.6% 1.5% 1.3% 7.6% 8.5% 6.2% 0.5% 0.4% 0.1% Belgium 1.2% 1.3% 0.9% 8.5% 8.5% 8.2% 0.5% 0.6% 1.6% Europe av** 1.1% 1.8% 1.8% 10.9% 10.5% 9.3% 0.7% 0.3% 0.5%

Consumer spending* source OECD, May 2016, updated Sept Europe av** (average of UK, Germany, France, Spain, Italy, NL and Belgium) [NA - not available] [source: OECD, 2016, The Economist, 30 September 2016]

The Economist magazine carries out a poll of international forecasters each month. The most recent poll at the time this report was prepared was 30 September 2016. Compared to Table 4, the Economist figures are much the same (mostly +/- 0.1%), although they are more negative about the outcomes for the U.S., the UK, Germany and Italy. The overall calculated mean for Europe, 1.6% growth in 2016, is the same as that given by the OECD.

Table 4 Forecast Rates of Growth in GDP

GDP Growth Estimates OECD Sep 2016 ** 2014 2015 2016 USA 2.4% 1.4% 2.1% Canada 2.4% 1.1% 1.2% Euro Area 0.9% 1.9% 1.5% UK 2.8% 2.2% 1.8% France 0.2% 1.2% 1.3% Germany 1.6% 1.4% 1.8% Italy -0.4% 0.6% 0.6% Spain 1.4% 3.2% 2.8% NL 0.9% 2.0% 1.7% Belgium 1.1% 1.4% 1.2% Europe av 1.1% 1.7% 1.6%

[NA - not available] [sources: OECD, June 2016, September 2016; The Economist 30 September 2016]

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Prospects in Each Country

Previous sections in Part Two have provided detail about the countries surveyed for this report. Further detail is provided by country, mainly about trends in retail sales and consumer confidence. This should be read along with the specific comments given previously in Part Two.

UNITED KINGDOM Although most discussion of the likely fortunes of the UK relates to Brexit, possible recession, and the longer-term disadvantages of leaving the EU, there has been less discussion of the economic policy of the new May Government. This has abandoned the policy of the Cameron Government to run a balanced budget by 2020 (largely unachievable anyway), announced it will launch a new industrial strategy, and is expected to spend much more on economic infrastructure, including housing, roads and communications. The fall in the value of sterling will support UK exports and promote tourism and retail sales abroad. Further cuts in corporation tax may also make the country attractive to businesses, although this needs to be considered in terms of the disadvantages of leaving the EU as well.

Figure 2a UK: Monthly Retail Sales 2011-2016, Year-on-year Growth

Seasonally adjusted, the above chart shows a strong growth in retail sales, now resumed after the post-Brexit shock.

Consumer confidence has improved since the early years of this decade. Figure 2b shows the post-Brexit slump in confidence, although the September figures showing a 7 point increase in confidence taking the UK back to the pre-Brexit level, have not yet been formally published by GfK (see Retail Bulletin, 2016, for an update).

In comparison, Figure 2c shows the movement of consumer confidence in the 28 countries of the EU area, where there has been some decline from the peak in 2015.

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Figure 2b UK Consumer Confidence

FRANCE Although the French economy was doing well in 2011, the growth rate has been low since then and unemployment levels have been at or around 10% (Table 3). From late 2014, there have been improvements in GDP growth and consumer expenditure. Retail sales have been variable but stronger in 2015 and 2016 (Figure 2c).

Figure 2c France: Retail Sales Year-on-year Growth 2011-2016

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Consumer confidence has been growing in France from its low point early in 2013.

Figure 2d France: Consumer Confidence 2011-2016

GERMANY Growth in the German economy has been well below its long-term average, but growth and retail sales both improved in 2015 and 2016 (Figure 2e). Wages have also been rising faster than in other European countries. Figure 2e shows a highly variable retail sales picture: recent trends have been rather negative. However we expect sales at Christmas in Germany to increase by 2.0% compared to last year.

Fig 2e Germany: Retail Sales Growth Year-on-year 2011-2016

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Figure 2f Germany: Consumer Confidence

Figure 2f based on the GfK consumer confidence figures shows a rising trend, albeit with some fall in confidence in late 2015.

ITALY The Italian economy has grown very slowly in this decade and there have been regular positive retail sales only for the last twelve months (Figure 2g). It is for this reason that Christmas sales are expected to grow by only 0.6% over last year and we see a continuation of what we previously termed ‘tempered optimism’ by Italian families. Figure 2h shows that consumer confidence is recovering very slowly since 2012-2013 when the economy was in a technical recession and during 2016 has become more negative.

Fig 2g Italy: Retail Sales 2011-2016

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Figure 2h Italy: Consumer Confidence

SPAIN Spain has experienced a long recession with unemployment more than 26% in 2013. This has been replaced by faster growth (although unemployment remains high) and increased retail spending (Figure 2i). Consumer confidence has grown, although slower growth in 2016 and political uncertainties may have caused confidence to fall recently.

Fig 2i

Figure 2j Spain: Consumer Confidence

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THE NETHERLANDS The Netherlands was also affected by recession in 2013 with GDP falling by -0.8% and consumer spending down by -2.0%. Since then economic growth has resumed, reaching 2.0% in 2015. The impact of retail sales is shown in Figure 2k, which shows that largely negative growth in the early period has been replaced by stronger growth in retail sales in 2015 and 2016. Consumer confidence has improved and is now in positive territory although confidence levels declined in the early 2016 (Figure 2l).

Fig 2k The Netherlands: Retail Sales 2011-2016

Figure 2l The Netherlands: Consumer Confidence

BELGIUM Retail sales growth in Belgium has been weak and mainly in negative territory during late 2015 and the first half of 2016 (Figure 2m), following a series of corporate restructures, fears of increased unemployment and concerns that political uncertainty will lead to higher taxes. In 2016, consumer spending has grown by only 0.9%. The consumer confidence graph

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shows great variations in confidence levels and a sharp fall in mid-2016. The Christmas forecast for Belgian is growth of only 0.9%.

Fig 2m Belgium: Retail Sales Growth Year-on-year

Figure 2n Belgium: Consumer Confidence 2011-2016

UNITED STATES The U.S. economy has grown more rapidly than European countries and this is expected to continue. Sentiment by mid-2016 was weaker, shown in employment figures and retail sales. Figure 2o shows that although U.S. retail sales have been positive for the past five years, Y-o-Y growth since 2014 has been slower than previously although 2016 may prove to be better on average than 2015. This is consistent with consumer confidence (Figure 2p) where the trend seems slightly negative since 2015

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Fig 2o U.S: Retail Sales Year-on-year 2011-2016

.

Figure 2p U.S.A: Consumer Sentiment 2011-2016

CANADA Canada as a primary producer has been adversely affected by the fall in price of natural resources as well as being affected by the reduction in global demand, resulting from the slowdown in China. After poor years in 2015 and the first half of 2016, prospects look rather better, although further improvement could be delayed until 2017 itself. Figure 2q shows that retail sales experienced significant growth until 2015 although 2016 has been rather better (with some weakening towards mid-year). Figure 2r uses a different source for consumer confidence as the national figures stopped at 2014. The OECD figures compares the OECD average (black line) with Canada (red line). Compared to other countries there was a fall in confidence starting in late 2014, reaching a bottom early in 2016 after which it

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has increased to almost previous levels. This indicates improved prospects for Christmas, with sales growth estimated to be +1.8%.

Fig 2q Canada: Retail Sales Year-on-year Growth 2011-2016

Figure 2r Canada: Consumer Confidence 2011-2016

[source: OECD, 2016 ‘Report on Canada’]

Most countries surveyed are having a more difficult time than in 2015. Compared with the early years of this decade, living standards are higher, there is some (if limited) economic growth and this should be sufficient to produce increases in retail sales at Christmas/Holiday time in the ways indicated for each country. The main risks are downside, ie the risk of a deterioration in forecast retail sales are greater than the chances of things turning out better.

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Part Three Christmas Spending 2016: Online Growth, Cross-border Sales, and the use of Mobiles and Tablets

The Scale of Online Christmas Retail Spending

The proportion of retail sales made online (rather than in stores) normally increases in the weeks before Christmas. Online traders often provide a greater variety of goods for the casual shopper than is available in many towns and cities; online goods tend to be cheaper; and it is often more convenient to buy a particular toy, game or item of apparel online than to find it in the shops. This is particularly true of inexpert customers that otherwise rarely buy certain categories of items, such as tablets or other electronic goods, apart from Christmas: they may feel that buying online will reduce the dangers of error.

The percentages of Christmas retail spending that will be carried out online are shown in Table 5. Amongst European retailers, the proportion of merchandise bought online was an average of 9.9% in 2013: by 2015 it had grown to 13.9% and is expected to reach 18.9% this Christmas. The U.S. share of retail sales made online in the Holiday season, which was 16.0% in 2013, will increase from last year’s 20.9% to 22.9% in 2016. In Canada, 2016 will see online growing from 5.8% to 6.9%. Note that our definition of retail excludes automotive fuel, sales of vehicles, and the sales made by cafes and restaurants. The U.S. definition of retail includes all these sectors, which collectively tend to reduce the declared U.S. online share of retail trade.

The strongest European performers in online sales are expected to be the UK (a 27.0% share in 2016) and Germany (21.0%), whilst the countries with the lowest online shares at Christmas 2016 are expected to be Italy and Belgium (8.5% and 12.2%, respectively). Spain, which only had a 10.2% share of retail in Christmas 2015 is expected to grow to 13.2% in 2016. The growth in French online sales has been relatively low in recent years and their 2016 Christmas share should be 16.3%.

In value terms, the UK and German online sales this Christmas are expected to be £20.966 bn (€24.153 bn) and £13.815 bn (€15.915 bn) respectively. Total European online sales in 2016 should be £52.953 bn (€61.004 bn), compared to £46.051 bn (€53.053 bn) in 2015, an increase of 15.0% (16.3% growth in 2015). The last three years have seen a reduction in average online sales growth in successive years, from 19.4% in 2014, 16.3% in 2015 and 15.0% in 2016. This fall is caused partly by lower growth in retail sales and consumer spending in Europe and partly by the likelihood that dizzy rates of online growth cannot continue for ever in countries where ecommerce has reached a significant market share. 26

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Table 5

Christmas Spending Online, Percentages and Values (financial figures are in billions [bn])

% online value online Change 2015 2016 2015 2016 2015-16 UK 24.4% 27.0% £18.570 £20.966 12.9% France 14.7% 16.3% £8.411 £9.471 12.6% Germany 18.9% 21.0% £12.161 £13.815 13.6% Italy 6.6% 8.5% £2.422 £3.151 30.1% Spain 10.2% 13.2% £2.265 £3.008 32.8% Netherlands 11.8% 13.3% £1.311 £1.501 14.5% Belgium 10.5% 12.2% £0.911 £1.041 14.3% Totals/averages 13.9% 18.9% £46.051 £52.953 15.0% U.S. 20.9% 22.9% £100.840 £112.739 11.8% Canada 5.8% 6.9% £2.200 £2.675 21.6%

In the U.S. online retail sales in the Holiday season are expected to be £112.739 bn, an increase of 11.8% compared to last year’s £100.840 bn. Canada’s online sales in the period under review are starting to grow rapidly (though from a comparatively low base), rising by 21.6% from £2.200 bn to £2.675 bn.

Canada has been relatively slow to adopt ecommerce, although it is a highly developed and connected country. This is partly because its ecommerce infrastructure and number of enterprises is not fully developed and the terrain, distance and climate make distribution more expensive. Moreover, although for most Canadians, the U.S. online market could readily serve them, high import duties and transport costs combined with an adverse exchange rate make ecommerce imports relatively costly. Its online share is expected to reach 6.9% this Christmas, compared to 3.8% of retail sales in 2013.

Many countries with smaller online shares this Christmas will gain the highest percentage growth in ecommerce: this includes Spain (32.8%), and Italy (30.1%) though ecommerce in both countries will have smaller growth than in 2015. Note that the totals for internet sales include goods bought from foreign websites and shipped to other countries: hence the Italian totals comprise both sales by Italian online retailers to Italian shoppers and foreign websites.

The growth of click and collect as part of multichannel retailing make it increasingly difficult to be precise about what is online retailing and what is offline store-based shopping. This can and does give rise to inconsistencies between analysts.

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Growth Online Increasingly Means Bricks-and-mortar Stores Struggle

In the 1990s and early 2000s, when online retailing held a comparatively small share of the market (mainly below 5%) and total retail sales regularly grew by between 2.2% to 4.8% annually, the impact of online retailing upon high-street or bricks and mortar stores was often ignored. This is not true any longer. Table 6 reports on online sales in 2015 and 2016 as well as offline (sales in stores) in each country.

In each country online sales are the main drivers of retail in 2015 to 2016, taking up all growth in retail sales except for Canada. This growth comes partly at the expense of bricks and mortar retailing. Last year, when retail sales growth was generally better than 2016, the average sales growth in European retail stores was -0.5%, although ‘all-sales’ totals increased by 1.8%. This year, the 1.6% growth in retail sales is associated with a decline in retail sales within European stores of an average of -1.0% (Table 6).

Table 6

Online and Offline (store-based) Retail Sale 2015- 2016

2015-16 2015-16 2015 2016 growth growth offline online offline online Offline* online UK £57.55 £18.57 £56.59 £20.97 -1.6% 12.9% France £48.80 £8.41 £48.60 £9.47 -0.4% 12.6% Germany £52.17 £12.16 £51.81 £13.81 -0.7% 13.6% Italy £34.29 £2.42 £33.78 £3.15 -1.5% 30.1% Spain £19.96 £2.27 £19.80 £3.01 -0.9% 32.8% Netherlands £9.78 £1.31 £9.76 £1.50 -0.3% 14.5% Belgium £7.76 £0.91 £7.73 £1.04 -0.7% 14.3% Totals £230.31 £46.05 £228.07 £52.95 -1.0% 15.0% U.S. £380.81 £100.84 £379.51 £112.74 -0.3% 11.8% Canada £35.59 £2.20 £35.79 £2.68 0.6% 21.6%

[* this is the residual after online growth has been deducted from total growth by all types of retailer]

A similar pattern can be seen in the U.S., although online sales are growing less quickly than in Europe and ‘all-retail sales’ are more buoyant, but the sales fall is expected to be -0.3%. In Canada, the ecommerce share is small, but nevertheless the all-retail total growth of +1.8% is cut to +0.6% for physical stores because most of the growth is taken up by online sales.

A UK survey in the UK found that one in three of internet users reported they shopped less frequently than two years previously (eMarketer, 2016b), although strong support for using stores to buy goods particularly in grocery and homewares confirmed attitudes and intentions varied widely (eMarketer, 2016c). This is a long term trend rather than a unique 2016 experience and is expected to continue further with most or all retail sales growth being taken up by online sellers. However this analysis takes no account of the use of stores by customers to collect online orders and the development by retailers of new multichannel

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approaches that link to store use and ecommerce purchase. Not every store is so affected by online commerce, but the prospects for store retailing as a sector are limiting.

Online Cross-border Trade

A growing percentage of ecommerce merchandise is sourced by consumers from another country, normally – but not always - by ordering from a foreign website. Table 7 shows the proportion of online Christmas sales that is bought by consumers from online retailers based in other countries. The focus of Table 7 is merchandise that consumers buy from foreign online websites or stores. It does not include goods shipped by multinational online retailers from other countries or goods that are supplied from depots in the home country but are invoiced for administrative or other reasons from a foreign location.

The estimates of cross-border trade in each country in 2015 and 2016 are based on customer interviews filtered by interviews with retail businesses. The reasons why a consumer may use a foreign website may be to ensure a better-quality item, a lower price or faster shipment. Some merchandise items may simply not be available in one’s own country, or not available online. Customers may be expected to be more willing to buy goods from foreign online websites where there is no language or cultural problems, where payment methods are familiar and the exchange risk is low, and if there are few, or no, customs formalities/taxes, delivery charges are reasonable and fulfilment is not unduly long. For countries such as Belgium and The Netherlands, cross-border trade may simply be very practical in view of their geographical locations and the share of cross-border trade is high.

Table 7

Online Cross-border trade 2015-2016 (financial totals in millions) % Cross % Cross Trade increase Border Border 2015-2016 2015 2016 2015* 2016* UK £660 £905 3.6% 4.3% 37.2% France £353 £434 4.2% 4.6% 22.8% Germany £957 £1,188 7.9% 8.6% 24.1% Italy £112 £151 4.6% 4.8% 35.2% Spain £84 £115 3.7% 3.8% 37.0% Netherlands £212 £261 16.2% 17.4% 23.2% Belgium £81 £102 8.9% 9.8% 27.2% Total/averages £2,459 £3,156 5.3% 6.0% 28.4% U.S. £2,644 £3,273 2.6% 2.9% 23.8% Canada £172 £215 7.8% 8.0% 25.2%

[* as a percentage of national online sales]

At Christmas thoughts often turn to childhood delicacies or stimulants and this may drive additional cross-border trade in chocolate products, decorations, local sausages, ham, 29

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cheese, haggis, tea and coffee, spirits, locally-made clothing or artisan-made products that are often ordered from countries abroad. Internet retailers such as those in the UK and Germany have been developing their foreign sites for many years. In the case of UK-based retailers, the devaluation of the pound makes their sterling and euro prices much lower than before and this should stimulate extra business.

The results are given in Table 7, which show that cross-border trade in Europe is expected to grow from £2,459 mn (€2,833 mn) to £3,156 mn (€3,638 mn), a rise of 28.4%. Cross- border trade in the U.S. should rise from £2,644 mn ($3,427 mn) to £3,273 mn ($4,242 mn) (+23.8%).

On average, cross-border trade is still a comparatively small share of national online retail sales: in Europe it will rise to an average of 6.0% this Christmas, to 2.9% in the U.S. and 8.0% in Canada. The higher Canadian figure is driven by the advantages of importing merchandise from the U.S.. Similarly, the above-average cross-border shares of The Netherlands and Belgium are probably the result of the local geography.

By Christmas 2016, The Netherlands, Belgium and Germany had the highest proportions of cross-border online sales in Europe, at 17.4%, 9.8% and 8.6% respectively. At 2.9% the U.S. had the lowest share of cross border trade. High forecast rates of growth in Spain and Italy probably relate to the fact that their national retail internet sectors are not diverse enough to match every foreign supplier.

The Growth of mCommerce

The growth in ownership of smartphones and tablets has changed the pattern of online retailing. Retail websites can now be accessed practically anywhere. Online transactions can be made by a customer who is sitting watching the television, waiting for a bus or standing in a competitor’s store. In Europe, France and Germany lead smartphone adoption (80.9% and 80.7%, respectively, of adults have one), followed by The Netherlands (80%), Spain (79.6%), the UK (76.5%) and Italy (68.7%) (Chung, 2016). Tablet computers are used by 44% of the population in France, 54% of UK households have a tablet computer, and 65% in The Netherlands. (Ofcom, 2015; Médiamétrie, 2016). In the U.S., 87% of adults own a mobile phone and 77% of mobiles are smartphones (Federal Reserve, 2016).

Over Christmas and also in periods of sales frenzy, visits to websites from mobile devices rise dramatically. Comscore (2016) estimated that over the U.S. Holiday season mobile retailing grew by 59%, whilst Internet Retailer reported that mobile online shopping in the UK grew by 44.4% in the month of December 2015 (Skeldon, 2015). Although more than 65% of consumers in every country surveyed possessed smartphones, they are difficult to use for online shopping unless websites are mobile optimised, or can transfer shoppers using smartphones to an optimised site.

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Apps can also be used to aid mobile-using shoppers. As well as making mobile shopping swifter and more efficient, they can incorporate discounts, loyalty systems, payments, and can be used to personalise the retailer’s off to individual consumers.

Retailers in the U.S. and the UK are probably most advanced in being mobile friendly, although retailers in other countries such as Germany and The Netherlands are emulating them. Mobile use is not simply a matter of consumer demand, but of retailers providing services in response to consumer needs (ie ‘pull’ as well as ‘push’). Naturally if a shopper using a mobile has a bad experience then this will discourage mobile use. Individual mobile use between countries will therefore reflect the facilities provided by retailers to make mobile successful. However mobile-users, especially smartphone users, expect to be able to use their phones for virtually any purpose, so even in countries where mobile use in online shopping is comparatively small demand that retailers provide apps and mobile- optimised websites is likely to grow.

Millennials or Generation Y (20 years to 35 years) are more likely to use smartphones as their primary device for going online compared to older shoppers. This is the first generation to grow up with personal IT as a convenience: it sees digital communication as both normal and essential (rather than being ‘nice to have’). Apps, videos, blogs, using social media and sharing potential purchases electronically with friends and relatives are seen as normal and these help to support both online retailing and mobile-enabled in-store retailing as well.

Mobile retailing has a much lower share of final purchases than of browsing or product research: the expansion of mobile retailing has been dependent on ease of use (ie mobile- friendly retail websites) and secure payments through a retailer’s application, a digital wallet or a third-party application like Apple Pay or Paypal. The normal two-dimensional security methods using password, CVS and personal information required when making payments on a desktop or laptop computer cannot readily be used with a mobile device away from the home because the screen is too small: there may also be the danger of wifi hacking in urban areas.

Shopping by mobile is currently age dependent. A recent UK study showed that 46% of millenials have purchased clothing using their mobiles but only 18% of those aged 45-54 years (eMarketer, 2016a). Consumer concerns about mCommerce security have been partially allieviated by heavy investment in security by financial institutions and major retailers. Most banks themselves now offer online banking on mobiles, generally using an app, which can only have helped normalise paying for goods online. For the past three years, mobile ecommerce has had an invisible payment wall: shoppers were increasingly likely to shop online, browse, make comparisons etc, (and at Christmas 2015 many retailers found that up to 80% of web traffic was mobile related), but when it came to payment shoppers reverted to PCs or bought instore. Attitudes are changing as more shoppers have a successful (ie secure) experience when making an online mobile payment or know others that have done so. The growth curve is now quite steep with mobile ecommerce sales in Europe expected to reach an average of 37.5% of transactions this Christmas.

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It is important to differentiate between the two main mobile devices, smartphones and tablets. Although they are both mobile devices, the tablet is normally used mostly at home (GfK in France estimated that 92% of tablet owners used it at home and 25% when travelling or commuting): the smartphone is used both at home and away from home. The tablet can be a family device, perhaps kept in the living room and used for purchases where the views of other members of the household are required or advisable. There is evidence that many households use a tablet in ways similar to a laptop computer to carry out relatively small individual tasks. It is fairly easy to input passwords and personal data when making a personal transaction, so the rapid growth in mobile use is partly explained by the flexibility and widespread ownership of tablets rather than it purely being a smartphone phenomenon.

Christmas Spending 2016 using mCommerce

Table 8 shows for every country the proportions and values of PC/fixed laptop and mobile eCommerce in 2015 and 2016.

The average share of mobile eCommerce in Christmas spending is forecast to rise to 37.5% of online business in 2016 (£21.37 bn [€24.63 bn]) in Europe and 43.9% (£49.49 bn [$64.114 bn]) in the U.S. Last year’s percentages were 25.6% in Europe and 33.6% in the U.S.

For Christmas 2016, the countries with the highest mCommerce shares are expected to be in the U.S. (43.9%), Germany (43.1%) and the UK (42.3%). Canada, at 23.4%, is expected to have the lowest proportion of mobile ecommerce, which is perceived to relate to an insufficient number of mobile-enhanced websites (CNW, 2015).

Tablet use for online Christmas purchases is expected to have a 44.5% average share of mCommerce in Europe (41.9% in 2015) and 43.7% in the U.S. (45.2% in 2015). Total ecommerce sales using tablets in Europe are forecast to be £9.51 bn (€10.97 bn) in Europe (+67.2% against 2015) and £21.65 bn ($28.05 bn) in the U.S. (+41.2% against 2015).

A major issue when making comparisons of this kind is that many shoppers use several digital products, often depending on where they are located and the device used for the final transaction may not be the one that has been used extensively to research and compare merchandise from different providers. Purely for convenience, tablets may be more likely to be in the sitting room with users perhaps stimulated by watching television and PC/laptops when buying larger items. There is some evidence (comScore, 2013a; Germany Trade and Investment, 2013) that tablets are preferred when purchasing apparel and home appliances, but less so when buying games or books, presumably because the screen is large enough to get a good view of the product and its detailed specification.

The introduction to the market of mini-tablets and large-screen smartphones and the so- called ‘phablets’ (including Nexus 6P, OnePlus 3, iPhone 7 Plus, and Samsung Galaxy S7 Edge) further disrupts the market by extending the functionality of smaller portable devices.

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Research Report Shopping for Christmas 2016

Research by Bamfield (2015b) showed that a proportion of smartphone online purchasers used smartphones at home in order to keep their purchases private, even though a tablet or a laptop might provide a better online experience.

Naturally this makes forecasting the precise share of different devices complex. Whatever the product is called, it is clear that the mobile share of the eCommerce market will continue to grow extremely quickly.

Table 8

Mobile Shopping as a Proportion of all Online Holiday Sales 2015 and 2016 (All figures in billions) 2015 2016 Mobile related All shopping PC Mobile Tablet Smartphone PC Mobile Tablet Smartphone UK £12.70 £5.87 £2.60 £3.27 £12.10 £8.87 £4.13 £4.74 France £6.00 £2.41 £0.94 £1.47 £5.76 £3.71 £1.53 £2.18 Germany £8.35 £3.81 £1.61 £2.20 £7.86 £5.96 £2.65 £3.31 Italy £1.87 £0.55 £0.15 £0.40 £2.12 £1.03 £0.44 £0.59 Spain £1.90 £0.37 £0.16 £0.21 £2.20 £0.81 £0.33 £0.48 Netherlands £0.96 £0.35 £0.16 £0.19 £0.91 £0.59 £0.27 £0.32 Belgium £0.71 £0.20 £0.09 £0.11 £0.64 £0.40 £0.16 £0.24 Averages £32.49 £13.56 £5.71 £7.85 £31.59 £21.37 £9.51 £11.86 U.S. £66.96 £33.88 £15.33 £18.55 £63.25 £49.49 £21.65 £27.84 Canada £1.82 £0.38 £0.18 £0.20 £1.77 £0.91 £0.43 £0.48

Percentages of all online sales 2015 2016 UK 68.4% 31.6% 14.0% 17.6% 57.7% 42.3% 19.7% 22.6% France 71.3% 28.7% 11.2% 17.5% 60.8% 39.2% 16.2% 23.0% Germany 68.7% 31.3% 13.2% 18.1% 56.9% 43.1% 19.2% 23.9% Italy 77.2% 22.8% 6.1% 16.7% 67.3% 32.7% 14.1% 18.6% Spain 83.7% 16.3% 7.0% 9.3% 73.2% 26.8% 10.8% 16.0% Netherlands 73.0% 27.0% 12.0% 15.0% 60.6% 39.4% 18.0% 21.4% Belgium 78.4% 21.6% 9.6% 12.0% 61.2% 38.8% 15.6% 23.2% Averages 74.4% 25.6% 10.4% 15.2% 62.5% 37.5% 16.2% 21.3% U.S. 66.4% 33.6% 15.2% 18.4% 56.1% 43.9% 19.2% 24.7% Canada 82.7% 17.3% 8.2% 9.1% 76.6% 23.4% 12.6% 10.8%

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Research Report Shopping for Christmas 2016

Part Four Categories and Gifts 2016

Christmas Spending by Main Category The breakdown of Christmas spending per household (or family unit) for friends, families and others is given in Table 9.

Table 9

Christmas Spending Per Household 2015 and 2016 by Main Category (euros) Christmas 2015 Christmas 2016 Decor Food& Holiday - Food& Holiday Decor- Gifts Drink travel ations Totals Gifts Drink travel ations Totals UK £473.46 £213.69 £81.82 £25.42 £794.39 £473.83 £223.55 £83.43 £29.16 £809.97 France £270.87 £148.10 £43.95 £14.81 £477.73 £273.48 £153.23 £43.64 £14.55 £484.90 Germany £335.53 £194.66 £46.55 £27.81 £604.55 £344.09 £196.09 £52.41 £24.05 £616.64 Italy £207.29 £129.90 £30.27 £15.71 £383.17 £217.79 £125.66 £28.52 £13.49 £385.46 Spain £180.96 £124.95 £20.71 £12.90 £339.52 £188.45 £125.41 £22.29 £12.20 £348.35 NL £211.11 £144.74 £30.39 £13.59 £399.83 £211.03 £146.10 £36.12 £12.58 £405.83 Belgium £299.53 £167.20 £30.26 £15.90 £512.89 £294.47 £172.34 £33.64 £17.07 £517.52

Average £299.63 £166.81 £44.63 £20.19 £531.26 £305.00 £169.21 £47.07 £19.14 £540.42 US £563.47 £237.20 £160.14 £40.03 £1,000.84 £554.39 £248.56 £175.93 £43.98 £1,022.86 Canada £460.36 £217.09 £129.24 £38.01 £844.70 £483.27 £225.30 £118.67 £32.67 £859.91

Food& Holiday Decor- Food& Holiday Decor- Gifts Drink travel ations Totals Gifts Drink travel ations Totals UK 59.2% 27.9% 9.9% 3.0% 100.0% 58.5% 27.6% 10.3% 3.6% 100.0% France 56.1% 32.0% 8.8% 3.1% 100.0% 56.4% 31.6% 9.0% 3.0% 100.0% Germany 56.0% 31.7% 7.4% 4.9% 100.0% 55.8% 31.8% 8.5% 3.9% 100.0% Italy 53.3% 34.2% 8.0% 4.5% 100.0% 56.5% 32.6% 7.4% 3.5% 100.0% Spain 52.7% 37.1% 6.2% 4.0% 100.0% 54.1% 36.0% 6.4% 3.5% 100.0% NL 52.3% 36.0% 8.0% 3.7% 100.0% 52.0% 36.0% 8.9% 3.1% 100.0% Belgium 58.2% 32.4% 6.3% 3.1% 100.0% 56.9% 33.3% 6.5% 3.3% 100.0% Average 56.1% 31.7% 8.3% 3.9% 100.0% 56.5% 31.3% 8.7% 3.5% 100.0% US 56.2% 23.6% 16.4% 3.8% 100.0% 54.2% 24.3% 17.2% 4.3% 100.0% Canada 54.2% 25.9% 15.3% 4.6% 100.0% 56.2% 26.2% 13.8% 3.8% 100.0%

Average household Christmas spending in 2016 is expected to be £540.42 (€622.57) in Europe and £1,022.86 ($1,325.62) in the U.S., increases of 1.7% and 2.2% respectively (compared to last year’s increases of 2.0% and 2.9%). Countries where households are likely to spend most include the U.S. (£1,022.86 [$1,325.62]), the UK (£809.97), Canada (£859.91) 34

Research Report Shopping for Christmas 2016

and Germany (£616.64 [€710.38]). Households in Spain spent least on average (£348.35 [€401.30]). Note that these figures are averages of all households and not simply figures relating to younger households with children.

Apart from significant differences in spending on gifts (the US household will spend £544.39 ($718.49) compared to £188.45 [€217.10] in Spain), there are important differences in spending on Christmas-related travel in the U.S., Canada and the UK. The budgets shown for ‘travel’ relate to journeys undertaken for Christmas-related purposes, such as visiting friends and family: they do not reflect any significant vacations taken except as part of the same process. Distances in U.S. are far greater than most Western European countries and this also increases the costs of the Holiday period in those countries. Other differences relate to local customs: in The Netherlands gift-giving between adults except family members is rare.

Between 2015 and 2016 it can be seen – as might be expected - that there has been only a small change in the proportions spent on the different categories of spending, although individual countries show greater variance.

Spending on Christmas decorations both inside and outside the home can vary because the same decorations can be used for several years. Indeed an average of 28% of households told us that their basic decorations had been used by their family for more than ten years. Practices vary between countries and families.

Christmas Spending on Gifts per Head

The previous report categorised Christmas gifts into different categories than was used before: this approach is continued for the current report. This means that comparisons with the 2014 or earlier results concerning gifts cannot be readily made.

The figures are given per head and not per household.

Gift spending per head in 2016 was an average of £157.82 (€182.01) in Europe, but higher in the U.S. and Canada. The countries that spend most on gifts in 2016 are expected to be the UK (£240.41), the U.S. (£212.95 [$276.01]) and Canada (£197.83 [$256.41]). Compared to 2015, this figures are affected by exchange rate changes.

Table 10 gives the breakdown in 2015 and 2016 for gift spending.

Gift spending is divided into nine categories.

 ‘Money’ means direct gifts of cash and means of payment that are accepted as cash, including money transfers, gifts of prepaid cards and vouchers including gift cards, post-office/postal cheques and postal orders, giro cheques, cheques and checks. Not all of these are available in every country.

 ‘Toys’ includes toy-type products purchased for adults. 35

Research Report Shopping for Christmas 2016

 ‘Consumer electronics’ means electronic products bought for personal use including computing, gaming, recording, photographic and audio devices and accessories as well as adult products bought for children (eg a tablet).

 ‘Clothing/footwear’ includes fashionable wear and spots/activity wear as well as more mundane items of apparel.

 ‘Cosmetics’ includes all health and beauty products.

 ‘Jewellery’ mainly means items of adornment worn on the person, including ‘costume’ jewellery (with little intrinsic value), watches, and items of intrinsic value. Normally it does not include antique products.

 ‘Books, films and entertainment’ includes digital and non-digital entertainment products and subscriptions. Devices used to show or read these products are included under ‘consumer electronics’.

 ‘Confectionery and alcohol’ include products widely given as gifts and consumed at Christmas. Alcohol purchased for home domestic consumption would be included in the Christmas category of ‘Food and Drink’ and if drunk in cafes, restaurants or other licenced premises as ‘eating out’.

 ‘Other’ – not classified elsewhere.

The European averages for these major gift categories in 2016 are (see Table 10):

Money £14.95 (9.6% of gift spending) Toys £30.96 (19.6%) Consumer electronics £30.02 (19.0%) Clothing/Footwear £37.77 (23.9%) Cosmetics £14.06 (8.9%) Jewellery £11.21 (7.1%) Books, entertainment £11.21 (7.1%) Alcohol, confectionery £7.27 (4.6%) Others £0.31 (0.2%) Total £157.76 (100.0%)

The main proportions of gift spending are relatively similar throughout Europe. The highest proportions of spending by country in each category in 2015 are:

Money – U.S., Canada, UK and France Toys – The Netherlands, Spain, and Canada

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Research Report Shopping for Christmas 2016

Consumer electronics – Canada, UK and Germany Clothing/footwear – Germany, France and The Netherlands Cosmetics – France and Belgium Jewellery – Italy and Spain Books, entertainment, DVDs – Germany, Spain, The Netherlands and the U.S. Confectionery and alcohol – Italy, Spain and Belgium

Spending is expected to increase by above-average amounts in toys, jewellery, and books/entertainment/DVDs, but spending to fall (relatively) on clothing and footwear and consumer electronics.

People will continue to buy products for their own use. In the U.S., the NRF has identified a growing practice of ‘self-gifting’, with 59% of shoppers surveyed likely to spend an average of $139.92 (£123.59) on presents for themselves (NRF, 2012).

These estimates are based on what shoppers who responded to the surveys stated to be their intentions. Naturally individual shoppers may spend more, or less, than they expected but these discrepancies are likely to even themselves out over the entire shopping population.

Table 10 Christmas 2016 Money, Toys Consumer Clothing/ Cos- Jewellery Books, Alcohol Other Total Gift Electronics footwear metics Entertain confect- Cards, -ment ionery Vouchers UK £26.42 £46.17 £49.54 £54.57 £20.92 £14.18 £17.31 £11.06 £0.24 £240.41 France £14.80 £24.23 £25.20 £34.53 £14.89 £11.41 £9.47 £4.59 £0.14 £139.26 Germany £16.41 £32.29 £38.57 £51.29 £15.95 £11.59 £14.82 £8.17 £0.95 £190.04 Italy £10.88 £23.01 £20.98 £24.36 £9.59 £10.49 £7.11 £6.21 £0.23 £112.86 Spain £8.28 £19.69 £17.01 £20.04 £7.57 £7.66 £7.11 £4.80 £0.18 £92.34 NL £8.85 £23.51 £19.42 £27.39 £9.28 £6.68 £7.87 £4.64 £0.22 £107.86 Belgium £14.94 £30.67 £29.19 £36.00 £13.91 £8.62 £10.13 £7.56 £0.30 £151.32 Average £14.95 £30.96 £30.02 £37.77 £14.06 £11.21 £11.21 £7.27 £0.31 £157.76 US £37.05 £38.76 £39.18 £47.06 £14.27 £12.13 £15.55 £8.52 £0.43 £212.95 Canada £24.00 £41.53 £43.90 £41.92 £13.45 £10.88 £13.84 £7.91 £0.40 £197.83

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Research Report Shopping for Christmas 2016

Christmas 2015 Money, Toys Consumer Clothing/ Cos- Jewellery Books, Alcohol Other Total Gift Electronics footwear metics Entertain confect- Cards, -ment ionery Vouchers UK £25.76 £45.88 £49.58 £59.07 £20.88 £9.87 £17.33 £11.80 £0.24 £240.41 France £14.49 £24.40 £25.09 £34.60 £14.89 £10.75 £8.82 £4.96 £0.14 £138.14 Germany £15.86 £30.55 £37.08 £51.87 £15.00 £10.55 £13.33 £9.07 £1.85 £185.16 Italy £10.46 £21.57 £19.53 £23.71 £9.44 £9.75 £6.31 £6.33 £0.22 £107.32 Spain £7.96 £18.71 £15.79 £19.43 £6.92 £7.99 £6.84 £4.88 £0.17 £88.69 NL £8.48 £23.96 £18.89 £28.70 £9.58 £6.69 £7.43 £4.21 £0.22 £108.16 Belgium £14.81 £31.38 £29.21 £39.21 £14.13 £7.83 £9.38 £8.00 £0.30 £154.25 Average £14.51 £28.71 £30.11 £39.11 £13.65 £9.77 £10.71 £7.45 £0.62 £154.64 US £36.57 £48.66 £46.11 £58.40 £18.44 £15.37 £17.93 £11.01 £0.51 £253.00 Canada £23.51 £42.58 £46.40 £50.64 £14.21 £12.07 £14.41 £7.85 £0.21 £211.88 Christmas 2016 Money, Toys Consumer Clothing/ Cos- Jewellery Books, Alcohol Other Total Gift Electronics footwear metics Entertain confect- Cards, -ment ionery Vouchers UK 11.0% 19.2% 20.6% 22.7% 8.7% 5.9% 7.2% 4.6% 0.1% 100.0% France 10.6% 17.4% 18.1% 24.8% 10.7% 8.2% 6.8% 3.3% 0.1% 100.0% Germany 8.6% 17.0% 20.3% 27.0% 8.4% 6.1% 7.8% 4.3% 0.5% 100.0% Italy 9.6% 20.4% 18.6% 21.6% 8.5% 9.3% 6.3% 5.5% 0.2% 100.0% Spain 9.0% 21.3% 18.4% 21.7% 8.2% 8.3% 7.7% 5.2% 0.2% 100.0% NL 8.2% 21.8% 18.0% 25.4% 8.6% 6.2% 7.3% 4.3% 0.2% 100.0% Belgium 9.9% 20.2% 19.3% 23.8% 9.2% 5.7% 6.7% 5.0% 0.2% 100.0% Average 9.6% 19.6% 19.0% 23.9% 8.9% 7.1% 7.1% 4.6% 0.2% 100.0% US 17.4% 18.2% 18.4% 22.1% 6.7% 5.7% 7.3% 4.0% 0.2% 100.0% Canada 12.1% 21.0% 22.2% 21.2% 6.8% 5.5% 7.0% 4.0% 0.2% 100.0%

Christmas 2015 Money, Toys Consumer Clothing/ Cos- Jewellery Books, Alcohol Other Total Gift Electronics footwear metics Entertain confect- Cards, -ment ionery Vouchers UK 10.7% 19.1% 20.6% 24.6% 8.7% 4.1% 7.2% 4.9% 0.1% 100.0% France 10.3% 17.7% 18.2% 25.1% 10.8% 7.8% 6.4% 3.6% 0.1% 100.0% Germany 8.6% 16.5% 20.0% 28.0% 8.1% 5.7% 7.2% 4.9% 1.0% 100.0% Italy 9.7% 20.1% 18.2% 22.1% 8.8% 9.1% 5.9% 5.9% 0.2% 100.0% Spain 9.0% 21.1% 17.8% 21.9% 7.8% 9.0% 7.7% 5.5% 0.2% 100.0% NL 7.6% 22.2% 17.5% 26.6% 8.9% 6.2% 6.9% 3.9% 0.2% 100.0% Belgium 9.3% 20.4% 19.0% 25.5% 9.2% 5.1% 6.1% 5.2% 0.2% 100.0% Average 9.7% 18.5% 19.4% 25.2% 8.8% 6.3% 6.9% 4.8% 0.4% 100.0% US 16.9% 22.5% 21.3% 27.0% 8.5% 7.1% 8.3% 5.1% 0.2% 100.0% Canada 12.5% 22.6% 24.6% 26.9% 7.5% 6.4% 7.6% 4.2% 0.1% 100.0%

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Part Five Key Dates for Christmas Shopping and The Sales

The peaks of spending, both online and offline, are affected by tradition, logistics and marketing/promotions. Hence, S. Nicholas Eve in The Netherlands is tradition, as of course is Christmas Day; Cyber Monday is logistics (to ensure online delivery before Christmas); and Black Friday is marketing promotions.

As noted in Part Two, the pattern of Christmas spending is changing in many countries, as a result of marketing initiatives by retailers and the growth of online retailing. Boxing Day sales in the UK were the New Year sales of 20 years ago. The traditional peak of Christmas spending offline, which usually occurred on the last Saturday before Christmas, is being replaced by a number of different peaks both online and offline, and now that Black Friday has been a retail event for five years in the UK some media now refer to the ‘Black Friday or Cyber Monday tradition’ (Kamouni, 2016).

These peaks or key dates for Christmas shopping are the subject of Part Five of this report. The Black Friday long weekend is discussed first, followed by other peak shopping periods.

Black Friday and Cyber Monday

In the U.S., Holiday shopping patterns are affected by Black Friday and Cyber Monday which create shopping peaks in late November as a result of deep discounting early in the Christmas season. The U.S. has a somewhat shorter Christmas season compared to countries like the UK and Ireland, where most shops start with a few Christmas-themed departments in late September or early October and add further Christmas ranges in November and December as they get nearer Christmas. Major department stores in London such as Harrods and Selfridges open Christmas departments as early as July, mainly for foreign tourists. The U.S. Christmas season traditionally starts immediately after Thanksgiving with Black Friday and Cyber Monday peak sales. This year Black Friday falls on 25 November.

Cyber Monday this year falls on 28 November, which is early for claiming that orders have to be placed on this day for guaranteed delivery before Christmas. Retailers are expecting another peak on Monday 5 December the so-called ‘Mega Monday’ (when shoppers need to order goods online before they sell out), as well as one on Monday 12 December (probably the last date for guaranteed online delivery in most countries). Since being recognised in the last decade, Cyber Monday has now become associated with significant promotions to prompt online purchases. This year, like last year, Cyber Monday will be part of a very long promotional weekend starting with Black Friday in both physical shops and stores and online.

Research Report Shopping for Christmas 2016

The original logic of ordering on Cyber Monday (when Cyber Monday fell in early December) was that shoppers made use of the better quality IT and bandwidth available at work. comScore (2012) showed that the proportion of Cyber Monday shoppers who logged on from work at 47.1% by 2012 was virtually identical to those logging on from home (47.2%). Now that fast broadband or fibre optics are the norm for shoppers and that many employers will take action against employees using work computers for their own purposes the logic behind Cyber Monday at work has become frayed. However it has become an even greater online event as a result of heavy marketing, media interest and the deep discounts offered to shoppers participating.

The pattern of Black Friday and Cyber Monday are now features of the Canadian retail picture, even though their Thanksgiving Day was held on 10 October this year (Accenture, 2015). As noted earlier, it is now a retail ‘tradition’ in the UK as well as having some traction in France, Germany and elsewhere (Longhurst, 2014). There is some evidence that the Black Friday/Cyber Monday weekend shifts retail demand from late summer (in the UK) and from mid- and late December to the Black Friday weekend (Don, 2015; Moth, 2015). The relative importance of instore trading on Black Friday has tended to weaken in the U.S.: a proportion of instore sales have transferred to Thanksgiving Day and to online purchases. In the UK, Black Friday sales instore in 2015 were well below expectations, and in France instore sales were affected by the aftermath of a major terrorist attack in Paris on 13 November (called ‘Vendredi Noir’ by many media commentators). As might be expected, store traffic in French towns fell after the attack, and the attack led some retailers (such as Leclerc) to disengage from the Black Friday programme, change its name (such as FNAC’s ‘4 Jours Uniques’) and to moderate the promotional tone. In these circumstances forecasting can be hazardous.

Table 11 Cyber Monday Online Sales 2015 and 2016 (all figures in millions) 2015 results 2016 forecast Week- 2015 Sat/ 2016 end Friday Sat/ Sun Monday total Friday Sun Monday total Increase UK £853 £430 £1,030 £2,313 £1,002 £634 £1,157 £2,793 20.7% France £148 £226 £175 £549 £177 £257 £204 £638 16.3% Germany £256 £234 £300 £790 £312 £272 £352 £936 18.3% Italy £46 £35 £58 £139 £56 £38 £66 £160 15.6% Spain £36 £31 £49 £116 £41 £36 £55 £132 12.6% NL £23 £23 £39 £85 £30 £26 £43 £99 17.3% Belgium £17 £18 £24 £59 £22 £21 £27 £70 15.9% Totals £1,379 £997 £1,675 £4,051 £1,640 £1,284 £1,904 £4,828 19.1% U.S. £2,148 £1,246 £2,337 £5,731 £2,483 £1,421 £2,664 £6,568 14.6% Canada £66 £43 £70 £179 £79 £50 £87 £216 20.3% [all figures in millions]

Table 11 shows estimates for online sales in the period from Black Friday to Cyber Monday. There are significant increases in sales in most countries for the whole period Friday to Monday – an average of 19.1% in Europe, 20.3% in Canada and 14.6% in the U.S.

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Research Report Shopping for Christmas 2016

The Europe figures are mainly driven by the UK and Germany, particularly the UK where records (and forecasts) have been broken regularly for the past three years.

Naturally sharp changes in retail sales compared to the previous year can occur in a day or a weekend, affected by weather, events or promotional offers. There is enthusiasm also in Germany and France for discounts on online merchandise, hence continued growth in online sales can be expected. Black Friday/Cyber Monday sales tend to be dominated by electronics and gadgets, although department stores, clothing and footwear stores, and health and beauty and hardware stores also get involved. Much depends on the actual level of discounts that is offered. Moreover, in order to avoid some of the problems experienced in 2014 by UK retailers (long queues, occasional scuffles, and websites going down) many companies spread their offers over the whole Black Friday week, or over the weekend and Cyber Monday. ASDA in the UK and Walmart in the U.S. also avoided the so-called ‘doorbuster’ promotions by spreading offers over a longer period of time.

Naturally this evens out demand but makes it difficult to predict which days will be most successful as every retailer keeps details of their offers a close secret. Table 11 shows total online sales for the four days between Black Friday and Cyber Monday, including non- promoted as well as promoted merchandise. Estimates of retail sales in any limited time period can only be tentative, as they will be affected by such considerations as changes in consumer confidence, expectations, weather and the attractiveness (or otherwise) of the discounts offered: hence the actual outcomes may be more variable than estimates for the whole Christmas season. Daily estimates for each country are included in Table 11 irrespective of whether there is a national Black Friday or Cyber Monday campaign or simply local ones involving ‘deals of the year’.

For the countries with a smaller Black Friday weekend sales these offers are not necessarily badged as ‘Black Friday’. For some countries therefore the entries relate to online sales in that period whether or not there has been a major Black Friday campaign.

Canada. In the last few years, Black Friday and Cyber Monday have become particularly important in Canada and the UK, two countries which are naturally most open to American influences. In Canada shoppers often cross into the U.S. in order to benefit from Black Friday and of course many Canadians see U.S. retail advertisements for Black Friday on TV and online and read about the Black Friday phenomenon in the media. Now 80% of Canadian retailers participate in Black Friday promotional campaigns, both instore and online (Accenture, 2014). Distance, terrain and climate can make some parts of Canada costly for online retailers – particularly U.S.-based ones - but online sales in Canada would probably be greater except (a) the depreciation in the Canadian dollar makes U.S.-sourced goods expensive and (b) the imposition of customs duties and taxes on all imports of merchandise valued at more than Canadian $20 plus the additional delivery charges often reduces the benefit of purchasing online for Canadian shoppers. This means that although Canada has a Black Friday peak in retail sales the potential online benefits seen in the U.S. and the UK are difficult to achieve. The UK. In the UK, 65% of retailers joined in the 2015 Black Friday and Cyber Monday promotions, although significant players like Next, IKEA and Primark did not. Sales exceeded every forecaster’s predictions, including our own. The crowd control problem seen in some 41

Research Report Shopping for Christmas 2016

areas on Black Friday 2014 were avoided and on many high streets the number of shoppers was below the number expected on the fourth Friday before Christmas, although concerns about security may also have played some part. Many clothing and Health and Beauty retailers had started their offers earlier in the week, so there may have been less need to grab a bargain on Black Friday. Instead, Black Friday became mainly an online phenomenon. Cyber Monday became the larger shopping date with sales of more than £1.1 bn.

Germany and France. Black Friday and Cyber Monday have had a lesser effect in other European countries but both France and Germany had significant sales peaks in the same period in 2014 (Shankland, 2014; Longhurst, 2014). However these represented only a small percentage of total retail sales during the Christmas period. As noted earlier, in France the Black Friday weekend in 2015 was unsuccessful instore for perfectly understandable reasons, but online sales grew compared with the previous year. So far, Black Friday and Cyber Monday have not had the appeal on mainland Europe that this period has had in the UK. This may be to do with consumer attitudes, but it also reflects the fact that many local retailers are still not involved in the Black Friday weekend promotional activity. Major global online retailers give promotions over this period of course irrespective of whether they are branded ‘Black Friday’.

Other European Countries. There has been a push particularly amongst US-owned online retailers and suppliers, to promote Black Friday as a pre-Christmas discount day for online purchasing in many countries, but they do not necessarily feature ‘Black Friday’ but some equivalent of ‘deals of the year’, as seen regularly for example in The Netherlands.

Online retailers are normally more open to pre-Christmas discounting and flash sales as a method of building market share and are not affected as much by the legal controls that some countries have on sales periods in physical shops. For example the changes made to the French Sales Law in 2015, eliminating ‘floating’ sales weeks, will either eliminate instore Black Friday offers or they will need to transform them into the more selective ‘réductions hors soldes’, ‘ventes privées’ or ‘offres privilegiées’. Table 11 focuses on online sales and provides estimates for the Black Friday long weekend for all the countries analysed in this report.

Discussion of Black Friday Period Estimates

Whilst growth in sales in the U.S. looks to be on the low side, at 14.6% it is higher than last year’s growth of 13.6%: Americans are more used to the concept of Black Friday discounting, so the stratospheric increases seen last year in the UK are unlikely. Some commentators argue that Black Friday/Cyber Monday are no longer relevant, for example Brustein (2014) argues that spending in stores on Black Friday has been in decline since 2006 and Klara (2014) argues the date is overrated: U.S. shoppers are buying much more online, they start buying on Thanksgiving, and in a world of regular promotions and discounts Black Friday is no longer so exclusive. However at least part of this argument is based on an NRF poll that may or may not be wholly representative (eConsultancy, 2015). Considering online sales, both Black Friday and Cyber Monday in the U.S. are very important and play an increasing role in the merchants’ calendar (Brustein, 2014; eConsultancy, 2015). Similar concerns are 42

Research Report Shopping for Christmas 2016

being expressed in the UK (Marshall, 2016) with some retailers complaining they make no profit from the sales increases, research showing that there is no overall gain to trade in December, and the CEO of John Lewis Partnership arguing that although it works for them the Black Friday weekend is massively distorting trading patterns

Online sales on Cyber Monday are normally greater than those on Black Friday. Last year in the U.S., online sales of $3.028 bn (£2.337 bn) on Cyber Monday were higher than the $2.78 bn (£2.15 bn) of Black Friday. In the UK, Cyber Monday has outsold Black Friday online for all but one of the last eight years 2008 to 2015 (ie 2013) and in 2015 Cyber Monday exceeded all predictions by reaching more than £1 bn. There are statistical problems in that some retailers start Black Friday trading earlier in the week and book all promotional sales to Black Friday: and the same can happen to Cyber Monday. In 2013, the first year when Black Friday became a major event in the UK, shoppers did not know what offers would be available the following (Cyber) Monday so they snapped up discounted goods on Black Friday (Wood and Smithers, 2014). Brustein (2014) shows that this trend is occurring in the U.S. also: Black Friday online spending in the U.S. on his estimates has improved from being 71% of Cyber Monday spending in 2012 to 92% in 2014. Our estimates give the 2016 proportion as 93%.

Cyber Monday purchases fall into very distinct categories including: clothing, apparel and accessories; toys; video games and consoles; electrical goods; books, films and music; personal care; smaller gifts; and gift vouchers.

Other Key Shopping Days There are several key shopping days in the weeks before Christmas, both online and offline (see Table 12). Black Friday and Cyber Monday are discussed above.

In addition to Cyber Monday (traditionally the date when people order online for Christmas), there are peaks of online ordering in December as noted in the previous section.

 Online purchases in The Netherlands start earlier, because the main focus of gift- giving for children is the evening before St. Nicholas’ Day (in 2016 it is Monday 5 December). Gifts may also be given on Christmas Eve in The Netherlands. This means that there is not a single online peak shopping day in The Netherlands).

 The first Monday in December (5 December this year) in the UK is a key time (Manic Monday) for making online orders that will be delivered well in time for Christmas.

 In the U.S. the 5 December (Green Monday) is also a time of peak demand.  In France, Sunday 11 December is important for online sales, mainly for logistical purposes, the last day to buy and have a decent chance of delivery before Christmas Eve.

 In Germany also the last-minute online rush seems to occur at the weekend of Sunday 11 December (see also Kokcharov, 2014).

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Research Report Shopping for Christmas 2016

 Christmas Eve (24 December) is on a Saturday this year, meaning that much Christmas gift buying and household food-and-drink purchasing will be compressed into the week commencing Monday 19th December. There are no spare days after the weekend is over.

 In the UK Boxing Day is on Monday 26 December, so most people will have a few days off work (the 25 December public holiday will normally be taken on 27 December so that instore sales days will be even busier than usual.

Patterns of peak demand for online merchandise are of course affected by the timing of discounts and promotional campaigns and these dates should not be viewed as the only period when there is a significant rise in orders.

Panic Saturday. Offline retailing does not have such predictable peaks of demand. However the period of a few days in the week before Christmas is usually the best trading time for most types of retailer, both food and non-food. What in the UK is now termed ‘Panic Saturday’ is the last Saturday before Christmas, when households are buying food for Christmas Eve/Christmas Day and shoppers who have either not completed their gift purchases or not started them fill the shops at this time. We feel that this year, Panic Saturday may be less frenzied because it is eight days before Christmas, leaving more time than usual for shoppers to complete their spending plans. This year panic Saturday is too early for people to buy fresh produce so a second peak in most countries will occur between Wednesday 21st and Friday 23rd as households stock up with last-minute supplies.

Frenzied Friday (my term). Friday, 23 December in many countries may take on some of the characteristics of Panic Saturday. Frenzied Friday is when the last-minute shoppers flock to stores to purchase gifts for others and meet the grocery shoppers who are preparing to buy goods for the family’s festivities. It should be a significant day, particularly as in countries like the UK, U.S. and Canada in which Christmas Eve gets very quiet after a busy morning.

Vacations. Because Christmas Day is a Sunday it is difficult to predict how employees will book their holidays over Christmas. Some no doubt will take Wednesday 21 December till 27 December, others may take the whole or most of the week before Christmas, whilst in the UK many will take the whole week after Christmas as this will normally cost only three vacation days. It may be different in the U.S.

Panic Saturday is usually the busiest day of the year instore for most traders, but possibly not in 2016, but Friday 23 December should be very busy everywhere, although Saturday 24th could be the busiest in countries France where Christmas shopping is carried out as late as possible.

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Table 12

PEAK SHOPPING DATES FOR CHRISTMAS 2016 UK France Germany Italy Spain Netherlands Belgium U.S. Canada Black Friday £1,002 mn €204 mn €360 mn €65 mn €47 mn €35 mn €25 mn $3.22 bn online Can$132 mn 25 November Cyber Sunday €210 mn Cyber £1,157 mn €235 mn €405 mn €76 mn €63 mn €50 mn €31 mn Online sales of Can$147 mn Monday Main online day $3.45 bn 28 November Monday 5 Manic Monday 3.7 mn Green Monday December 5mn £494 mn shoppers spend $1.89 bn online €184 mn St Nicholas’ Eve Sun 11 Dec Last Minute Last Minute Sunday Sunday €446 €283mn mn (Panic) 12.2 m spend 11 mn shoppers 8.0 million 8.1 mn 7.0 mn 2.0 mn 70 mn spend Saturday £0.930bn spend €1.02 bn spend €0.81 shoppers spend shoppers spend spend €180 $10.70 bn 17 December bn €0.75 bn €0.65 bn mn

Friday 23 Dec 10 mn spend 11 mn 11 mn spend 7 mn spend 4.5 mn spend 2.5 mn spend 2 mn 68 mn Busiest day £894 mn Spend €890 mn €927 mn €625 mn €367 mn €169 mn €143 mn Spend €7.39 bn 6mn Can$0.9bn Saturday 24 12 mn shoppers €792 mn €540 mn €321 mn €94 mn €122 mn €6.21 bn Christmas spend €930 mn Eve Early Sales Boxing Day Boxing Day £3.85 bn sales References

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shoppers’, The Guardian, 1 December, http://www.theguardian.com/business/2014/dec/01/black-friday- cyber-monday-sales-christmas-shopping-orders-bargains

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