The twelve lessons of Christmas for the high street

Get online, don't discount fiercely – and recruit a snowman for your advertising campaign. James Thompson reveals what we have learnt about how retailers can prosper in the festive season

Retailers can prosper in the festive season (PA)

Retailers had hoped that Christmas 2012 would mark a turning point when they could start to relax safe in the knowledge that consumers are in the mood to spend freely again. Sadly, this scenario did not materialise, and the latest festive period will be remembered for its fierce discounting, particularly in the fashion sector. While some chains, such as John Lewis, shot the lights out, for many, healthy, like-for-like sales – which strip out the boost from new space – only served to mask the fact they had to sacrifice margins to entice shoppers through their door. Here is what we learnt:

If you're not online, you'll suffer

Morrisons blamed its weak performance on the fact that it still does not sell food on the web and only has a handful of smaller convenience stores. These weaknesses contributed to the Bradford-based grocer posting a 2.5 per cent fall in sales over Christmas, in contrast to its rivals. Both Tesco and Sainsbury's delivered booming online grocery sales over Christmas, up by 18 per cent and 15 per cent respectively, as well as enjoying robust growth in their convenience stores. Dalton Philips, the chief executive of Morrisons, will update on March on its online plans with a trial expected later this year.

Try to match your rivals

Marks & Spencer's latest clothing and homewares sales not only missed City expectations by a country mile, but also marked its sixth-consecutive quarter in negative territory. Its chief executive Marc Bolland described the performance as "not yet satisfactory", but blamed the fall on the company's decision not to match the fierce discounting of rivals as it sought to protect profit margins. M&S said this enabled it to sell more products at full price and running 7 per cent fewer promotions helped it avoid a profit warning, but analysts downgraded it.

It pays to plan ahead and invest

Tesco delivered its strongest UK underlying sales before Christmas, following a period of under-performance. The 1.8 per cent rise in sales over the festive period put listed grocery rivals Sainsbury's and Morrisons in the shade. Its Christmas performance vindicates the £1bn investment by Philip Clarke, chief executive, unveiled in April, to turn around the UK operation with more staff, revamped products and refurbished stores.

Create a buzz and be prepared to serve

The snowman TV advertisement generated reams of free publicity for John Lewis in the broadcast, print and online media.

On the shop floor, John Lewis' product offer and service reputation helped deliver scorching, underlying sales up by 13 per cent over Christmas. But its star-performer was its website, which grew revenues by 44 per cent, as customers logged in to make record purchases for home delivery or collect in store.

Don't be drawn into a price fight

Debenhams has been one of the high street's best performers over recent years, but it got sucked into slugging it out with rivals with two additional days of price discounting before Christmas.

This resulted in Debenhams guiding towards its gross margins being up just 0.1 per cent, after previous estimates of a 0.2 per cent rise. Shares were hit on the day and led analysts to trim their profit forecasts.

Sickly relations may drag you down

JD Sports continues to struggle with Blacks and Millets, which it bought out of administration in January 2012. JD described the trading of the two outdoor chains as "disappointing" over Christmas and said that it now expects the group's full-year profits to come in at about £60m, which is at the low end of City expectations. However, the sportswear group vowed to deliver a "substantial improvement in trading" at Blacks and Millets this year.

Small means room for growth

While Sainsbury's and Tesco battle it out to lay claim for the crown of the grocery sector's Christmas winner, low-profile Aldi continues to power ahead. The German discounter has charged ahead of its rivals by launching a huge expansion in its fresh fruit and vegetable offer, as well as ramping up the brands its sells, including Marmite and Carlsberg. Aldi grew its sales by 30.1 per cent over the 12 weeks to 23 December, according to Kantar Worldpanel, giving the company a small – but fast-growing – market share of 3.2 per cent.

We like living in a digital world

The surge in internet retailing shows absolutely no sign of abating and grew 17.8 per cent in December, according to the British Retail Consor tium, which was the highest growth since December 2011. While many had tipped 3 December – dubbed "Mega Monday" by the PR community – to be the busiest day of the year for home shopping, it came later in 2012 as consumers had more confidence in deliveries arriving on time. Retailers, including Next, M&S, and Debenhams, all powered ahead online.

Italians produce the best fizz

Hard-pressed Brits are quaffing prosecco in record numbers, while sales of champagne are flat, according to Majestic Wine. Sales of prosecco outstripped those of Spain's cava to be up by 20 per cent over Christmas. Steve Lewis, the chief executive of the wine warehouse chain, said: "Prosecco is the real story with sparkling wine." But the fizz has come out of Majestic's sales, which only grew by 1.1 per cent between 13 November and 31 December.

Story of the sales will take time

With Christmas Day falling on a Tuesday, huge numbers of consumers left their shopping until the final full weekend before Santa arrived. Many retailers, however, blinked first in the annual game of chicken with consumers and the high street was a sea of red sale signs before Christmas. As a result, while many retailers have already posted a rise in like-for-like sales, the true story on profits will not emerge until their full-year results.

Do not expect a spending spree

The most common phrase from retail chiefs was that 2013 promises more of the same in terms of consumer spending. Chains posted an anaemic 0.3 per cent rise in sales at stores open for at least a year. As this included the boost from higher prices, the figure shows that consumers continue to keep a tight lid on both food and discretionary spending. Until wages inflation, which is currently running at 1.7 per cent, outstrips wider price rises, the high street will continue to bump along the bottom.

Do expect more high street casualties

When troubled camera chain Jessops collapsed into administration on Wednesday, the only surprise was that it had taken until the second week of January for a chain to fold.

The continued pressure on household budgets and the fact too many retailers have too many stores means more chains will follow Jessops into an early grave this year. Begbies Traynor, the restructuring firm, estimates that 140 retailers face "critical" financial problems after 194 fell into administration in 2012.

Sales figures: Winners and losers

John Lewis +13%

Warehouse +7%

Ted Baker +7%

House of Fraser + 6.3%

Debenhams 5%

New Look +3.7%

JD Sports Fashion +3.2%

Dunelm +2.2%

Tesco +1.8%

Topps Tiles +1.6%

Sainsbury's +0.9%

Next – 1.4% (online up 11.2%)

Morrisons – 2.5%

Marks & Spencer – 3.8% in clothing and homewares