No Match Found
The last few years have seen the Golden Quarter become an unpredictable period for retailers. While many of the same challenges remain - pandemic recovery, supply chain issues, economic pressures and a cost-of-living crisis - we’ve seen similar promotional activity across the year as in 2021. Does that mean another year of low and early promotional activity, or will the twin peaks of Black Friday and Boxing Day return?
In the two years since we launched the PwC UK retail promotions tool, the retail industry has seen its fair share of changes and challenges: a global pandemic, stock shortages, supply chain issues, economic pressures and a cost-of-living crisis.
Prior to the pandemic, we saw the traditional Boxing Day sale replaced by ‘twin peaks’ promotional trading on Black Friday and post-Christmas, as retailers looked to take advantage of increased interest in Black Friday but also the higher footfall after festive celebrations. This new approach saw fewer promotions in between, as retailers looked to claw back margin in the crucial run-up to Christmas, a time when consumers are more willing to pay full price.
In 2020, we saw significantly higher Black Friday activity than in previous years, as retailers looked to clear the excess stock that had built up over COVID-19-enforced lockdowns, with multichannel retailers forced to close non-essential physical stores on the day itself.
Then, in yet another trend change, last year showed much lower Black Friday promotional activity than previously, with retailers battling supply chain shortages and pent-up demand post-lockdown.
Those last few years of turbulence made predicting this year’s activity challenging. However, the general prediction was that 2022 would see a reversion to much higher promotional levels, for a number of reasons. Stock shortages were expected to be resolved, with shipping times improving from key supply areas (such as Asia), as was a catch-up effect as the delivery backlog cleared. In addition, fragile consumer demand (declining from the Autumn) against the backdrop of a cost-of-living crisis and retail sales volumes lower than last year in the run-up to Black Friday and below pre-pandemic levels in some categories, suggested spending would be constrained. Other considerations were also reports of unusually high stock levels and profit warnings, particularly for online retailers that were struggling as a result of incorrect predictions that demand and growth would continue to shift offline - if anything, there was a shift back to stores over Black Friday, which was particularly pronounced amongst young shoppers.
Generally, this year’s promotional levels have been similar to 2021. But with a few notable exceptions.
Comparatively, promotional levels in the early part of this year were lower this year due to a combination of stock shortages in 2022 - and therefore fewer promotions in general - and non-essential shops being closed in 2021, which led to more promotions online last year.
While spring and most of the summer showed similar promotional levels, there were higher promotional levels in August and September 2022 as consumer demand fell back, while the same time last year saw the unwinding of pent-up demand and peak consumer sentiment.
Those promotional levels have then remained broadly in line with 2021, as retailers held their nerve in anticipation of a strong Black Friday. Despite much talk in the press about high-profile retailers looking to move early on Black Friday sales, a rush of promotions never materialised. There was no evidence to suggest it would’ve been any earlier than normal anyway, particularly with the Black Friday and Cyber Monday weekend increasingly becoming more akin to a fortnight, long before the pandemic.
On Black Friday itself, there was a significant - and expected - increase in retailer participation, as they looked to take advantage of consumer interest: 76% of the 207 online retailers we surveyed had some kind of special promotion on the homepage. While this was slightly higher than last year (72%), it was much lower than in 2020 (90%) and wasn’t driven by any specific category.
However, discounts were typically less generous. Most retailers were offering only a quarter or a third off, and only on specific lines that had sold less well across the year - for example, clearing winter coats, which remained unsold due to a mild autumn. While some can view these types of discounts with concern, these should rather be considered as ‘sensible’ or ‘planned’, as part of the process of good housekeeping or in the course of business. They should not be viewed as an indicator of higher-than-normal distress levels, or that demand has dropped off.
We also saw ‘blanket promotions’ (e.g. ‘20% off almost everything’) continue to fall, from a peak of 36% in 2020 to 26% in 2021 and 21% this year. While these types of promotions are usually reserved for online pure-play retailers to drive traffic, in some instances they are used by some distressed retailers to generate cash; several high street retailers with blanket promotions in 2020 later fell into administration. So, while there’s little denying that current trading conditions are challenging, it looks hopeful that many retailers started from a position of strength in 2022.
Overall, for the majority of retailers, Black Friday was a relative success. Or, at the very least, it ‘went to plan’. With our Black Friday survey confirming that consumers were planning to spend more, particularly younger ones, those retailers that managed to hold their nerve should have seen success. Doing so will have seen them take advantage of increasing consumer interest and use the event for targeted discounts to clear excess stock while preserving margin.
Encouragingly for retailers (and perhaps frustratingly for customers), the low promotion trend has continued into early December, with no material change in the overall level of discounting yet.
We saw discounting fall back as rapidly as expected after Cyber Monday, with significant numbers of retailers returning to full price to protect margins and take advantage of more consumers planning to do their Christmas shopping in early December. This is a credible approach, given that much of last year’s trend was forced by stock shortages.
For now, retailers appear to be well-planned with promotional activity and strategy. But this could all change.
Our recent Festive Predictions report suggests that consumers will spend 8% less this year. While all categories should be affected, consumers are prioritising food and Christmas dinner (with food at 45-year record high inflation). - which is likely to mean even less to spend on gifts.
There will still be stock to clear. And industrial action across many different parts of the economy will impact many aspects of Christmas: people’s spending decisions, how restrained they are, when, where and how they shop, in-store footfall, deliveries and even the channels they use.
Combined with declining consumer confidence, which is already falling and set to continue into 2023, it could get challenging quickly. We know spending lags sentiment by around 6 months. On top of that, we anticipate a “credit card hangover” from Christmas spending in the new year, tax increases and the lifting of the Energy Price Guarantee from next Spring, as well as a continued squeeze on real incomes into 2023.
In response, watch for retailers starting their Boxing Day sales in the week before Christmas, as they suddenly realise the threat of excess stock. This will be particularly noticeable among those that have been less disciplined, particularly around buying, across the Golden Quarter - and the year more generally - and those that have less attractive or less on-trend product ranges.
In fact, we have already started to see a slight increase in the proportion of retailers on promotion in the second week of December, as strikes begin to impact high street footfall and online delivery times. While still below Black Friday and Boxing Day sales levels, this already indicates some concern over demand for seasonal stock.
We also expect to see retailers participating in Boxing Day promotions with greater gusto than in previous years, and with much deeper reductions after Christmas and into the New Year. These discounts may reflect more traditional Boxing Day sales than we’ve seen in the last few years.
For some, we may see blanket promotions increase as they look to free up cash. These could be viewed as warning signs for those retailers that participate, and be a predictor of the risk of retailer and supplier failure, particularly where stock cannot be cleared at reasonable margins from Q1 onwards.
For now, however, all of these remain predictions. Make sure you sign up for our Retail Briefing event in January 2023 to see how the sector - and our predictions - fared, as well as find out our key actions and recommendations for the coming year.
Developed by the PwC UK Deals Technology team, our UK retail promotions tool web collects data each morning from a sample of 207 online retailers.
It identifies whether each retailer is advertising a promotion on its homepage and the depth of its biggest promotion offered. “Promotion” is defined as a discount off some or all products in the store, advertised on the website landing page.
“Everyday” and “targeted” promotions are excluded - these include 10% off for mailing list sign ups, free delivery promotions, year-round clearance sections, voucher codes, and member-only discounts.