29 Dec 2017
A Warm Christmas for Retailers
2017 Christmas Sales Performance of the Major Markets
The run-up to Christmas marks the end of the year and the final sprint for retailers, a time when the festive atmosphere drives shoppers to purchase gifts, decorations and other supplies for both the upcoming yuletide and the imminent New Year. Every year, the level of Christmas or year-end sales in many of Hong Kong’s exports markets serves as a barometer of the economic health of individual countries and trading blocs. With 2017 having seen a continued recovery in the global economy, there has been consequently strong growth in Hong Kong’s exports. The sustained nature of this growth was borne out by a robust performance by the retail sector in most countries, a reassuring indicator that the growth momentum of the global consumer market is likely to be maintained in 2018.
In the US, consumers enjoyed a ‘warmer’ Christmas this year, a consequence of the more favourable economic situation. According to the US Bureau of Labor Statistics, the November unemployment rate saw the country’s 16-year low of 4.1% sustained for a further month. Additional cheer came from the fact that the US Consumer Sentiment Index, as published by the University of Michigan, reached its highest level for almost 17 years back in October. Overall, personal consumption expenditure, which accounts for more than two-thirds of US economic activity, increased by 0.6% in November (month-on-month), following a marginal increase of 0.2% in October.
Thankfully, the favourable retail environment suggested by the macroeconomic data converted into a positive sales performance for the start of the holiday shopping season. Although the overall sales figures for December – as well as for the entire holiday period – will not be released until January, the high level of spending over the post-Thanksgiving Black Friday weekend, as well as on the ever more popular Cyber Monday, provided an early indication that retailers were likely to be kept busy in the run-up to Christmas. According to the US Census Bureau, the overall growth rate of the US retail sector accelerated to 5.8% in November, up from 4.9% in October. In addition, the National Retail Federation predicted that US retail sales would show a 3.6-4% increase over the holiday season when compared to 2016. Seeming to endorse this, Mastercard estimated the year-on-year increase would be around 4.9%, the largest such rise since 2011.
In terms of actual shopping behaviour, American consumers long ago began a mass migration to online shopping in preference to in-store purchases, a trend that was clearly sustained this year. According to figures from the National Retail Federation, online (and other non-store) sales enjoyed 10.5% year-on-year growth in November.
In addition, Cyber Monday 2017 – the online equivalent to Black Friday and which fell on 27 November this year – was the biggest day for online shopping in US history, with record sales of US$6.59 billion, a 16.8% rise over last year, according to Adobe Analytics. In a similarly positive sign, data provided by Mastercard SpendingPulse showed that the level of online retail shopping has jumped by 18.1% across the entire holiday season. Deloitte’s 2017 Holiday Survey was, again, upbeat and indicated that this year US shoppers will spend more online than in-store for the first time, with the majority of purchases made via desktop computers.
Clothing again topped the US Christmas shopping list this year, with many consumers wooed by the discounts on offer throughout the festive season. Apparel aside, there was also growing demand for consumer electronics products, especially among the more tech-savvy younger generation. With the US market now in a post-smartphone boom period, consumers have shifted their focus to smart-home devices, such as Google’s Home and Amazon’s Echo and Alexa devices. In line with this, Amazon, the global e-tailing giant, reported that its best-selling product over the holiday season was the Echo Dot, its proprietary smart home device.
Given that Christmas is traditionally a time to celebrate with friends and family, entertainment-oriented systems that allowed for a shared experience – including AR/VR headsets, video games and the Nintendo Switch, Xbox One and PlayStation 4 gaming consoles – were in considerable demand. According to Mastercard, sales of electronics and appliances overall rose by 7.5% year-on-year, while several toy ranges, including LEGO, Star Wars and Disney, also performed impressively. Among those who wanted to streamline their Christmas largesse, gift cards remained a popular option.
Overall, Europe enjoyed a moderate economic recovery in 2017, with the EU economy as a whole expected to have achieved growth of 2.3% this year, at least according to the European Commission’s Autumn 2017 European Economic Forecast. Despite such optimism, there remained very real concerns that terror attacks could disrupt Europe’s Christmas markets, concerns that were further fuelled by the release of a series of propaganda posters showing attacks in a number of locations, including London and the Vatican. Overall, though, the majority of European shoppers are expected to have spent lavishly this year, with the exception of the UK, where growth is expected to be slower than the EU average. In addition, UK retailers may also have to contend with the problems of higher inflation and import prices, as well as reduced consumer confidence.
While Brexit remains the biggest source of concern and uncertainty with regard to the UK economy, the conclusion of the first phase of the EU divorce talks in mid-December may have provided a degree of damage limitation and proved a boon to the retail sector ahead of the holiday season. According to the Office for National Statistics, UK retail sales edged up by 1.6% in volume terms and 4.7% in value terms year-on-year as of November, a figure boosted by Black Friday spending following a 0.3% drop in October, the first since 2013. Online sales, meanwhile, continued to enjoy rapid growth, recording a 10.2% year-on-year rise in November, a sure sign that British consumers are continuing to reduce their in-store spending. Indeed, for November, online sales accounted for 17% of all retail spending, an increase from the 16.1% recorded for November 2016.
While many UK retailers were confident that Super Saturday (23 December), the last full shopping day before Christmas, would see a flood of last-minute shoppers, they still had a number of concerns. Most notably, consumer confidence weakened in December, dropping to its lowest level for four years. UK households also had to contend with inflation climbing to 3.1% in November, its highest level for nearly six years, while average weekly wages grew by just 2.3% over the three-month period ending October 2017.
In another change, the import of the Black Friday concept from the US has inspired UK consumers to begin their holiday shopping well in advance of Christmas, rather than spending in a more concentrated period. One casualty of this has been the country’s traditional Boxing Day sales, with receipts expected to be down this year. When combined with the increasing popularity of online shopping, the UK’s shopping centres and high streets have inevitably seen a decline in overall footfall. Shoppers are also expected to spend a higher proportion of their income on groceries, a consequence of stalled salary levels and increasing food prices.
With the memory of last year’s attack on Berlin’s Christmas market receding, the German economy enjoyed robust growth over the last 12 months, with the country’s retailers confident that this will be reflected in their Christmas takings. At present, German unemployment is at its lowest level since 1990, with October seeing an adjusted unemployment rate of just 3.6%. In light of these favourable economic conditions, the German Retail Federation (HDE) expects sales over the Christmas period to rise by 3%, taking the total to a record high of €94.5 billion (US$112.9 billion).
In the case of France, its domestic economy has improved in line with the gradual expansion of the overall European economy. As with its German counterpart, the French economy expanded at a relatively rapid pace throughout the year, with the country’s National Institute of Statistics and Economic Studies (Insee) anticipating overall growth of 1.9% for 2017. According to the Commerce Federation (Fevad), French shoppers are also expected to spend more online this year, with total e-commerce sales expected to be around €15.8 billion, a 13% year-on-year rise. As a whole, December 2017 has already proven to be a record month for credit and debit card transactions.
For Europe as a whole, electrical and household electronic appliances – including smart TVs, computers, smartphones and tablets – are expected to have made the largest contribution to overall sales levels this year, with video games and other entertainment-related electronics items also likely to have proved popular. A significant number of present-buyers, however, will still have opted for gift vouchers, while sales of clothing and toys are also expected to have enjoyed steady growth in the run-up to Christmas.
Switching the wider focus to Asia and to Japan in particular, the country’s holiday shopping peak season is expected to start a little later than in the west, with Black Friday gaining increasing traction, though yet to compete with the hugely popular New Year sales. Overall, though, Japan’s retail sector is expected to have a good Christmas, an outcome buoyed by general upturn in consumer sentiment.
Overall, September marked the 11th month of consecutive retail sales growth, although October did see a minor drop of 0.2% year-on-year. Despite this hiccup, November saw the highest level of consumer confidence since September 2013. In terms of products, consumer electronics and electrical household appliances are expected to have been the most in demand in the run-up to Christmas, while entertainment-oriented electronic products, such as the Nintendo Switch and other gaming consoles, were also expected to have proved popular, as were a number of daily use items, including facial massagers and bath salts. The inclement weather that struck Japan throughout December, meanwhile, was expected to provide a boost for sales of warmer clothing.
Turning to China – and despite the fact that Christmas is not officially observed in the country – many consumers have a pronounced inclination to shop as the year-end approaches, with November / December retail sales jointly accounting for around one-fifth of the annual total. While recent unconfirmed reports that Christmas is to be officially banned may have dampened sales in certain cities, there is no real expectation that overall retail activity will have been notably curbed. A number of shoppers, however, are expected to postpone much of their festive / gift shopping until January 2018, largely as a consequence of the longer than usual interval between New Year and the Lunar New Year (16 February).
Sales conditions overall remain favourable, with the China Consumer Confidence Index – a quarterly gauge of job prospects and spending intentions across the mainland, conducted by Nielsen – reaching an all-time high in the third quarter of 2017. In line with this upturn in consumer confidence, the November level of retail sales in China showed a 10.2% year-on-year increase. For 2017 as a whole, total retail sales are likely to have maintained double-digit growth, with an average increase of 10.3% already recorded for the first 11 months of the year.
Turning to China’s online retail sector, this has enjoyed robust growth. Between January and November 2017, the level of online sales across the mainland grew by a massive 32.4% year-on-year. In total, online sales accounted for 14.8% of all retail spending for the first 11 months of 2017, a significant rise over the 12.6% in 2016.
Singles’ Day – the annual November 11 event held to celebrate the single life – is now seen as kicking off China’s holiday shopping season. This year, Alibaba alone notched up RMB168 billion in sales in the run-up to this unofficial festival, with its 39% year-on-year upturn in sales reflected in the performance of many of China’s other e-commerce giants. For Alibaba, though, its 2017 Singles’ Day sales marked a new record for the company since the launch of the first Singles’ Day back in 2009 with sales of 52 million RMB. In addition to Singles’ Day, Black Friday is also gaining traction as one of China’s major retail events, a development that has been driven by the rise in cross-border e-commerce.
In terms of the items likely to have proved the best-sellers across the mainland this year, smartphones – a staple of the everyday life of many mainlanders – are set to take the number one slot, followed by a number of household electrical appliances, most notably smart TVs, washing machines and other small household appliances. Sales of clothing and outdoor/sports fittings, too, are expected to show steady growth.
Other Emerging Markets
With the overall European economy expanding rapidly over the course of the last 12 months, much of this was buoyed by the healthy retail markets in many of the formerly Soviet nations. In Russia, for instance, consumers were notably less pessimistic with regards to the domestic economy. This was highlighted by the six consecutive rises in the Consumer Confidence Index recorded by the Federal State Statistics Service (Rosstat) in the third quarter of 2017. With the 2018 World Cup set to be staged in 11 cities across Russia in the June-July period of next year, the country’s retails sector is all but assured of a windfall from both local and overseas supporters.
Turning to Hungary, it has enjoyed solid economic growth throughout the year, with retail sales recording a 6.3% year-on-year rise as of October. According to the country’s National Commerce Association (OKSZ), December’s retail sales should easily notch-up a 4% rise when compared to last year. In Poland, if anything, the figures are even more promising. According to the Bank Millennium, one of the country’s largest commercial banks, Poles are expected to spend some €5.24 billion over the 2017 Christmas period, a 9.3% year-on-year rise. In the Czech Republic, its Christmas sales hit a high on 11 December, with online spending alone exceeding CZK 1 billion ($46.6 million), according to the country’s Association for Electronic Commerce.
Moving some 11,000 km to the southwest, the overall Christmas sales results in Latin America are expected to be a little more mixed. On the upside, Brazil’s Retailer Confidence Index showed a 10.6% year-on-year rise in November, according to figures released by the National Confederation of Commerce of Goods, Services and Tourism (CNC). In line with this improving confidence, Brazil’s retail sales over the Christmas period are expected to enjoy a 5.2% year-on-year rise.
By contrast, Mexican and Chilean consumers are expected to be little more moderate when it comes to their 2017 Christmas expenditure, a consequence of the poor performance of the two countries’ economies. In Mexico, things appear relatively less promising, with its economy having shrunk by 0.3% quarter-on-quarter in the third quarter of 2017, its first contraction for nearly two years. Mirroring this, October saw its retail sales drop for the third consecutive month, signalling an overall year-on-year decrease of 0.1%.
A Hearty Welcome for 2018
Overall, the global retail market enjoyed healthy festive growth over its traditionally busiest period. It was also clear that many retailers were keen to begin the seasonal sales period as early as possible, with shoppers also happy to make advance purchases in order to avoid the crowds and supply shortfalls likely to be found as the holiday proper approached. In the US, for instance, discounts ran from Black Friday right through to Christmas, with several areas also reporting a number of pre-Thanksgiving promotions.
Similar structural shifts in the holiday shopping season was also observed in many other countries, including Germany, Italy and China, an indication that the peak holiday shopping season is no longer solely restricted to the immediately pre-Christmas period, but now extends back into November. Indeed, the 2017 holiday season started briskly with bustling Black Friday sales in the west, record takings on China’s Singles’ Day and a number of other retail milestones being exceeded elsewhere in the world, prior to an all-round uptick in the final few shopping days leading to Christmas.
For 2018, the improved holiday sales performance in many of the major markets indicates the likelihood of a positive consumer spending environment and an overall optimistic outlook for the global economy over the near term. In particular, the positive retail sales growth witnessed towards the end of 2017 suggests that the traditional markets are now on track for growth, while the emerging economies are also picking up speed.
In the case of the US, its economy is expected to maintain its growth momentum well into 2018, with consumer confidence, which has finally regained its pre-financial crisis level, set to drive retail spending. With the exception of the UK, the prospects for many of the European countries, with their recovery continuing apace, again seems positive. The biggest question mark hanging over the region, of course, remains the likely outcome of the ongoing Brexit negotiations which will finalise the divorce agreement between the UK and the other 27 EU-affiliated nations.
Overall, Asia is expected to remain the primary driver of global economic growth. In the case of China, the rapid growth of its domestic purchasing is seen as indicating that moves to re-balance the economy have clearly proved successful, with the country now on course for continued growth. In Japan, by contrast, its economy seems set for only moderate economic growth, even given the likely boost stemming from Tokyo’s successful bid to stage the 2020 Olympics. In terms of the country’s retail sector, the consumption tax hike proposed for 2019 may see a surge in luxury product purchases in 2018 as shoppers bid to buy before the new levy is imposed.
Over in Europe, the emerging central and eastern economies are likely to benefit from the continuing recovery of their more developed neighbours to the west. By contrast, over in Latin America, many of its constituent countries – with the possible exception of Brazil - may face a tougher time, with each needing to address the particular challenges that are impacting on their economic development.
Looking at the lessons to be learnt from the 2017 holiday season, it is clear that the online market remains the frontline for many global retailers, with the growth of e-commerce revenue continuing to outpace the growth in overall retail sales in many of the major markets. This, however, does not necessarily sound the death knell for bricks-and-mortar retailers, instead it shows a clear change in shopping habits and a shift to the online-to-store shopping model. As a consequence, it is now not unusual for shoppers to browse products in a store, compare prices via a mobile device and then make the final purchase from a desktop system.
All in all, the ubiquity of omnichannel purchasing opportunities will continue to transform the global retail industry, resulting in both new challenges and new opportunities for Hong Kong exporters. With the global economy taking a clear upturn, though, there has never been a better time for Hong Kong exporters to review their strengths and weaknesses as they look to maintain their overall competitiveness.