Consumers hoping for early Christmas sales are likely to be disappointed this year, according to leading trade credit insurer Atradius.
While early Christmas discounting to attract footfall has been a popular approach in recent years, Atradius predicts retailers will adopt a different Christmas strategy in 2012.
Owen Bassett, Atradius’ senior retail risk underwriter, said: “The retail landscape has changed dramatically in the past 18 months and sales strategy along with it. Consumers are unlikely to experience such prolific Christmas discounting as they’ve enjoyed in recent years.
“Q4 2011 found many retailers presuming the worst was over and ordering their Christmas stock with misplaced optimism. The subsequent double-dip recession hit these retailers hard as consumer spending plummeted, leaving them with no option but to discount heavily – and early – in order to shift stock. For every £1.00 reduction, £1.00 was eroded from their profit margins. We saw a raft of resulting insolvencies in Q4 2011 and Q1 2012 with major retail brands such as Game, Peacocks, Blacks, La Senza, Past Times and Barratts falling by the wayside.
“This year has subsequently seen retailers adopting a more cautious approach. Eroding profit margin is unsustainable, so we are likely to see retailers holding out as long as possible rather than entering ‘sale wars’ with one another. As a result, we’ve seen later, smaller purchases of seasonal stock.
“Retailers will be desperate for a positive Christmas trading experience and many of our retail contacts have forecast they will take a third of their annual earnings in November and December alone. That the UK is technically out of recession will have some positive impact on consumer confidence, but unemployment remains high, pay freezes persist and the squeeze on discretionary spending continues, leaving retail in a potentially perilous state, caught between predicted performance and actual sales. If forecasts aren’t met, we may see further high-profile insolvencies in Q1 2013.”
Atradius protects businesses against not getting paid for goods or services they have provided, analysing and managing trading risks on their behalf, both domestically and overseas. In the event they don’t get paid by a buyer – in the case of an unexpected insolvency, for example – Atradius pays up to 90% of the outstanding money instead, keeping cash flow constant throughout the supply chain. Atradius has paid out £150m in claims to over 11,000 UK companies in the last three years.