So here it is. But will this Christmas be a merry one for retailers? And will any of them end up having fun? On the face of it, supermarket chains and independent retailers alike should be rubbing their hands with glee as they prepare for this year's festive season. Their customers continue to spend, spend, spend ­ in spite of all the doom and gloom in the economy at large. And this confidence among consumers, mixed with a dollop of price inflation, has created a period of buoyancy not seen in food retailing for at least four years. But while the major supermarket chains are enjoying like for like sales growth well ahead of last year, there are those in the trade ­ notably Sainsbury and Tesco ­ which have been warning that these benign trading conditions will not last much longer. If they are right, and the good times are coming to an end, Christmas in the grocery industry could end up being even bloodier than usual. It's a critical period. The multiple trade takes 9% of its yearly sales in the four weeks leading up to Christmas, says ACNielsen. Should there be a downturn, they will fight tooth and nail to shore up that business ­ which, as always, would be bad news for the independent sector. However, such pessimism may be misplaced because there is little evidence of a downturn in any of the retail statistics produced by government or the trade. Take the British Retail Consortium's Retail Sales Monitor for August, published this week, which shows the industry enjoyed another month of healthy growth. Although the figures were slightly weaker than in July, growth in like for like retail sales values in August was still running at 5.6%, and 7.9% overall. And food retailers enjoyed "very strong growth in value" in spite of intense pressure on prices. So what's happening? Analyst David Stoddart, of Teather & Greenwood, believes Christmas should be okay for the grocery sector, although he admits he might as well toss a coin as try to second guess what is going to happen. Will there be a downturn in retail sales? Will it come before Christmas or after? Who knows. But Stoddart adds: "Grocery is always more resilient; it's simply not discretionary. And Christmas is always merry ­ it just may not be as merry as retailers would like this year." Critical to the success of the festive season for all retailers is what happens to prices ­ and margins ­ should consumer spending suddenly fall off a cliff. ACNielsen figures show that promotions accounted for 23.7% of all expenditure last Christmas, with alcohol the most heavily promoted sector. Despite that level of activity, the market researcher described Christmas as "an unspectacular period" (due in part to the problems caused by floods and the transport crisis). Promotions were no higher largely because Tesco and Asda shunned them in favour of EDLP. That is unlikely to be the case this year as the two have already made it clear that they are preparing to slug it out in their bid to become Britain's cheapest grocery chain. Should the increased competition between them combine with a knee-jerk reaction by the rest of the multiples then the trade will see prices slashed and more aggressive promotional activity unleashed. Any jitters in retail head offices will be compounded by the knowledge that consumers are leaving their shopping later than ever. So it will be fascinating to see who cracks first. Not everybody thinks a price war will erupt in December. The consensus view seems to be that prices will remain pretty stable (more of that later in this special report). We will see. But if they are right, the real battles this Christmas will not be over food or booze ­ well not too much ­ but in a much newer field: one in which independent retailers will be relieved to hear they have little or no exposure. Economist Roger Bootle, who advises Deloitte and Touche, believes non food stores ­ which have not generated decent margins during the summer boom ­ are particularly vulnerable to what he predicts is an inevitable downturn in retail spending. And he asks: "What's going to happen to margins when consumers stop spending?" Clearly what will happen is that margins will shrink further because these retailers will be forced to slash their prices to maintain volumes. But will those supermarket chains building up their non food ranges for Christmas find themselves caught in the crossfire? "They may find they can't get the prices they had hoped for and are left with stock," Bootle warns. Stoddart is not convinced: "By and large in these non food markets, grocery retailers are either in entry price points or have very keen prices with stuff bought on the grey market. So, given that Brits instinctively want to spend at Christmas, it could be that the food retailers will pick up spending from the high street that will offset any slowdown.Their big advantage is that they have the space to play with and because they enjoy regular visits from consumers they can promote their offers." That may explain why one grocery buyer is relaxed about his plans to run massive promotions on non food this Christmas. "Non food is really dynamic and if you get it wrong, it can be a disaster," he admits."But as an industry, we have still not satisfied the full potential for non food in our stores. The only real risk is if you get the price wrong. If you want to be a leader you need to get prices right from the start." And therein lies the rub. Say your chain has bought 20,000 bikes and plans to sell them at £100, only to find someone else on the High Street is pushing them out even cheaper. You will have to discount heavily. And that's a costly business. The flipside, of course, is that if punters were thinking about spending £200 on a bike from a specialist they may be keen to trade down. In which case, you will be laughing all the way to the bank. It is a hard one to call. But in spite of the uncertainties about the economy and consumer spending, buyers had to call this one weeks ago ­ and the stock they ordered is now in their supply chains. Stoddart says this is undoubtedly the critical issue. "The really interesting question is that when the grocers placed their orders for Christmas what were they expecting? Are they going to be left with inventory in January or have they underbought?" Neither would be welcome for retailers hoping to maximise their merriment ­ and protect their bottom lines ­ in December. And that's why the run up to Christmas 2001 looks set to be more nerve-wracking than ever. n {{FEAT. COVER }}