No cash, no flash for UK Christmas

● The Brits’ Christmas dinner will be the most expensive in at least a decade as the cost of everything from poultry to Yorkshire pudding soars.

Prices for a typical holiday meal, including turkey, pork and vegetables, are up more than 22% since last year, according to researcher Mintec’s Christmas dinner index.

That reflects turmoil in markets from agriculture to energy after Russia’s invasion of Ukraine, as well as a severe bird flu outbreak in the UK.

“Inflation has had a severe impact on the food industry, with tighter margins for producers caused by rising input costs,” Mintec said. The firm’s data goes back as far as 2012.

British households are facing the worst cost-of-living crisis in a generation, with inflation at a 41-year high. Those including meat in their Christmas dinner have to contend with a 39% year-on-year jump in the price of pork and a 30% increase in the cost of turkey. Consumers opting for a vegan meal also face a costlier spread, with Mintec’s plant-based Christmas dinner index up by almost 14%.

Meanwhile, a lacklustre Black Friday in the UK added to an already muted Christmas season, leaving retailers with a problem: too much stock.

Marks & Spencer Group, Next and Hotel Chocolat Group are all trying to tackle high inventories that are forcing some British retailers to take on costly warehouse expenses and contemplate even steeper discounts.

According to data firm Springboard, footfall on Black Friday was 17% lower than prepandemic levels, indicating “consistent nervousness around spending in the current climate”.

The problem has been building for months, as many stores ordered their winter stock at the start of the year, when supplychain problems still meant long waiting times and before spiralling inflation began to hurt spending. At the same time, consumers are sending back significantly more products than in November last year, compounding the inventory problem, according to ReBound, a firm that manages returns for retailers.

“Retailers heading into Black Friday were sitting on more stock than they traditionally would at this time of year,” said Miles Lethbridge, director in deals strategy and operations at PwC. “Combine that with some retailers maybe having a slower Black Friday than they anticipated and that means there is a lot of stuff bunging up certain retailers’ supply chains.”

Marks & Spencer has asked suppliers to postpone deliveries to its warehouses and has delayed finalising orders for next year, the Sunday Times reported. The food and clothing chain said it’s having to “readjust stock flow” as lead times normalise after the pandemic.

Chocolatier Hotel Chocolat is seeking to “materially reduce” its inventory levels, with stock taking on average 5½ months to sell vs 3½ months before the pandemic.

Next has denied some requests for warehouse space from smaller-commission label brands because it has enough inventory. It’s a contrast to last year when “no-one had any stock” and there was very little discounting, Next CEO Simon Wolfson has said.

A build-up of stock is particularly hard for fast-fashion chains to manage as items can fall out of style quickly. Asos had £1.08bn (about R23bn) in unsold stock in August, up 34% from a year earlier. The online retailer is writing off more than £100m in products.

Steep discounts

Excess stock means retailers face a tough path during the key Christmas trading period. The unusual winter timing of the 2022 Fifa World Cup in Qatar is also disrupting commerce and British brands are having to contend with postal strikes by Royal Mail, making it harder to send stock out and manage returns.

“The level of discounts and volume of products discounted is higher than usual,” said Nabil Malouli, vice-president in global e-commerce for DHL. “This is a strong indication that retailers might be overstocked.”

Christmas sales started earlier than usual and Black Friday discounts have been deeper over a longer time.

Discounts are crucial amid the cost-ofliving crisis in the UK as food and heating take up a growing share of consumers’ pay cheques. Shoppers are expected to spend £1.8bn less this festive season than in 2021, cutting back on gifts and celebrations, according to PwC.

Warehouse costs

Warehouse provider GXO Logistics is working with retailers to help move inventory and is adding mezzanine levels to cram in more stock. “Excess stock does require extra storage space and that’s not necessarily easy,” said Neil Shelton, the company’s chief strategy officer. “Inventory levels were exceptionally high heading into peak season.”

Overstocked retailers may have to pay for extra warehouse space or pay demurrage costs while stock sits in freight containers.

“There are going to be companies turning out a huge amount of cash for storage,” said Danni Hewson, financial analyst at AJ Bell. “They will have to go heavy on the sales and we may start to see sales pre-Christmas that we would expect to see in January, particularly for bigger-ticket items.”