FSP Christmas Sales Report - 2010

Contents

• Christmas 2010 trading summary

• 2010 in perspective

• Key issues in 2011

• 2011 expectations

2

The Weather!

• It affected business but did it reduce sales?• Next says it lost £22m of sales, HMV £20m, M&S

£55m and Debenhams £30m• However:

– Brent X closed Saturday before Christmas but then had 2 record days

– Peter Cowgill, CE of JD Sport, claims ‘lost’ sales were exaggerated

– BRC said reluctance to spend was a result of economic and job uncertainty

• There is a general ‘consensus’ (amongst retailers) that non-food lost c2% of sales due to the snow

3

Christmas Trading Results: UK Retail Extracts

Like-for-like Sales Averages by Category

• Winners were department stores

• Leisure and household most challenging

5

-4 0 4 8 12

Household

Leisure

Grocery

Personal

Clothing & Footwear

Dept/Variety Stores

Restaurants

%

2009 2010

• 2009 better for most than 2008

• 2010 modest performance

• Note Burberry at +14%, Aurum Group +15% and White Company +24% (total sales)

6 Positive Like for Like Sales - Comparison

• Direction of travel worrying for Comet/Thorntons

• Surprisingly weak performance by New Look

7 Negative Like for Like Sales - Comparison

• no like-for-likes quoted, but total sales increases of >90% group

8 Some Interesting Winners

• there’s still a market for luxury

• something has gone right at last!

• Non-Food - surprisingly good results, compared to its own Food section

• 20% up over Christmas

• Christmas revealed little that was not known:– Bad weather can affects retailing (or not!)– One-stop shopping locations benefit - covered malls,

department stores and supermarkets

• But sales growth is slowing – the difference between the best and the rest is increasing

• Retailers direction of travel is important – not just sales extracts

• Like for like figures are interesting but should be treated with caution

• Sales are vanity, profit is sanity

9 Christmas Sales - Summary

2010 Trading – a Glance Back

Retailer Failures11

• The shake-out has slowed • Many casualties already had a chequered history e.g. Adams, Faith• 2010 was the Year of the Phoenix - Cruise, Thoughts Cards, Happit• British Bookshops and Krisp latest casualties

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2008 2009 2010

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Tota

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Retailer Failures Store Closures

Put in context of 2010 trading overall:

• There has been a marked increase in the proportion of Healthy and retailers and a decline in Very Worrying

• FSP tracked 62 new retailers opening in 2010

0%

10%

20%

30%

40%

50%

60%

Healthy Head above water Very worrying

% R

etai

lers

2009 2010

Business Health12

UK Retail Sales Growth (BRC Data)13

• But the sales trend remains unmistakably down• It is therefore critical to understand the ‘direction of travel’ for

individual retailers

0

1

2

3

4

5

6

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

%

3mth Like-for-Like 3mth Total

-60% -40% -20% 0% 20% 40%% Change in BIS Index (2008 - 2010)

Change in Financial Health14

• Direction of travel is not consistent

• Identifying winners and losers is essential

2011 - Key issues

Key Factors16

UK ExternalVAT Increase Rising Commodity Prices

Public Sector Cuts Sovereign Debt Crisis

Rising Inflation / Interest Rates Falling Exchange Rate

Falling House Prices

Pay Restraint

Fragile Consumer Confidence

Restricted Consumer Access to Credit

Stalled Retail Development Pipeline

The Elephant in the Room…..

0%

5%

10%

15%

20%

25%

30%

35%

40%

2005 2010 2020

Inte

rnet

/ Su

perm

arke

t Sha

re

30%

35%

40%

45%

50%

55%

60%

65%

70%

Tow

n C

entr

e Sh

are

Internet Supermarkets Town Centres

• Growth in Internet and Supermarket turnover significantly higher than on high streets between 2005 and 2010

• If trends continue, by 2020 the majority of comparison goods sales will take place outside town centres

Source: FSP

17

2011 - What sort of a year?

• Middle ground will continue to be squeezed

• Weakest/smallest of the value operators will come under pressure

• Electronics – some ‘rationalisation’ would not be surprising

• Household goods – continued depression of house market

• Tired retail formats e.g. Moss Bros, HMV, Bhs?

• Middle sized towns will continue to lose out to larger towns, OOT and on-line, leading to continued consolidation of portfolios

• Public sector dominated economies will be hit

• Margin pressure will continue to squeeze sustainable rents

2011 – Where Will It Hurt?19

• Retailers with strong brands, distinct market positions and attractive formats will keep ahead of the pack e.g. H&M, Hollister, Apple

• Tough times will continue to spawn innovation – more websites

• New market entrants e.g. Gillyhicks, Forever 21, 7 For All Mankind

• Growth of home-grown newcomers e.g. Boux Avenue, Hed Kandi

• Quality, value and customer experience will out perform the market e.g. regional malls, factory outlet centres, John Lewis

• Successful trading locations will be those which embrace and exploit the needs of the consumer

• Successful landlords will be those who understand their occupiers and adapt to the evolving needs of their shoppers

FSP Predictions20

Fripp Sandeman and Partners Limited, trading as FSPG Nicholson (Managing Director) J H Fell J Hewson K GunnRegistered Number 1284879Registered Office 19 Manor Courtyard Hughenden Avenue High Wycombe Buckinghamshire HP13 5RE

FSP 19 Manor Courtyard Hughenden Avenue

High Wycombe HP13 5RE UKT +44 (0) 1494 474740

F +44 (0) 1494 474262E fspretail@fspretail.co.uk

W www.fspretail.co.uk & www.snap-shop.co.uk

©FSP 2011