November 2008
Retail analysts Verdict Research are forecasting that UK shoppers will spend more this Christmas than last despite the current financial crisis, but this extra spend will be driven by the higher cost of food. Faced with a more expensive Christmas feast, consumers will be selective with food shopping and careful with their gift purchasing, buying fewer items of both. This means retailers will have to fight much harder for a share of their Christmas spend.
Verdict forecasts that UK consumers will spend £82.3bn with retailers in the final quarter of 2008 or £1,363 per head. Though this is an increase of 2% on 2007, it is the second lowest growth rate in 20 years and the £1.6bn extra shoppers will be spending will be more than eaten up by food inflation.
Maureen Hinton, lead analyst at Verdict comments, “Not surprisingly food & grocery accounts for the largest share of shoppers’ spending over the Christmas period (38%), and with food inflation running at 6.3% this quarter, consumers are facing a more expensive Christmas feast. But unavoidable though this extra expense will be, shoppers will be more careful in what they buy, balancing spending on treats with cutbacks on everyday foods.”
Stripping out the impact of inflation, volume growth in the sector will be only 1.3%, less than half the 2.8% achieved last year. With cost inflation running at over 3%, the squeeze on retailers’ margins will be intense.
For non-food retailers life is going to be particularly tough. Unless they can stand out from the crowd with a compelling offer they will be passed over by far more selective consumers. Home related specialists will be the biggest losers, with sales of DIY and furniture & floor coverings falling into negative sales despite inflation. Unlike the majority of the retail sector, the Christmas season does not constitute the major part of their sales, and the collapse of the housing market will worsen this trend. Furthermore, they cannot fall back on the promise of high volume sales in January.
Verdict predicts Q1 of 2009 will be particularly tough for all retailers. In the face of job losses and the arrival of post Christmas credit card bills consumers will hold back from any unnecessary spending, particularly on big ticket items, precipitating a raft of further retail casualties.
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