Consumers plan cutbacks but Christmas won't be cancelled
says Tarlok Teji, UK Head of Retail at Deloitte.
This year consumers have had to deal with an onslaught on their spending ability with massive increases in their energy bills, substantial hikes in transport and petrol costs and food inflation, all this is on top of mortgage payment increases. Whilst some of this is now going into reverse with falling inflation and sharp cuts in the interest rate, how much of an impact will the turbulence of the past 12 months have had on consumer sentiment?
On a simple indicator, where we saw a 7% increase in spend last year to a 7% reduction in consumers' intention to spend this year, we could conclude that there has been a downward shift of 14% in consumer confidence. However we live in a complex, turbulent and fast changing world and need to get under this simple analysis for meaningful consumer insight to see what is really going on.
The UK consumer has been bombarded with news about the global financial crisis. Unprecedented circumstances have lead to enormous amounts of uncertainty with house prices falling, stock markets crashing and soaring in the space of days and predictions of a global recession. This for the ordinary consumer is hard to grasp. Not because the messages are difficult, but it's the sheer speed, scale and quantity of changing information that is hitting them on a daily basis.
Those consumers that are sensitive to economic pressure have told us they will be cutting back this Christmas and represent 24% of those surveyed. More interestingly, 57% of consumers said they are unlikely to change their behaviour and it will be Christmas as usual. If this seems incongruous, given the current economic turmoil, the remainder of our survey said they were going to spend more than last year. The majority of consumers in this latter category were from the 16-24 year old group.
This year it's all about 'in-tertainment' where staying in has become the new going out. A key trend that has been developing for some time has truly come of age this Christmas. Going out to clubs, pubs and restaurants for lavish events is over for most of us. Instead we intend to stay in and entertain our family and friends. Learning from our post-war parents and grandparents who may have sung carols around the tree or played charades around the fireplace we are likely to do this with a technological twist. Gathering around the television screen instead to sing computer assisted karaoke or play sports and quiz games.
The hospitality and leisure industry's loss may well be the retailer's gain this year if they have the right product ranges available. The consumer seems prepared to embrace 'savvy' shopping by trading down on some items and buying premium on others. There is also a reluctance to give up on progress made to ease the conscience on items like healthy eating and buying local. However, organic and fair trade may suffer due to tighter budgets. We are seeing the emergence of different shades of green.
Price is back on the agenda along with value and convenience as key motivators of where people will shop, and consumers are more willing than ever to shop around. When it comes to giving, the provenance and austerity sentiment is strong with consumers wanting to give something useful and of value and not frivolous items. This may explain why clothes have gone to the top of the gift charts this year.
Online shopping matured last year and we expect its use to stay at similar levels although the amount those people plan to spend online is likely to increase. Consumers tell us that they will use the internet for research and seeking out bargains as well as buying presents.
The retail landscape entered a transition phase long before the 'credit crunch' arrived. Consumer centric retailers recognised this and started making adjustments over a year ago. The current financial crisis has just accelerated the process. Many retailers have already anticipated this and are carrying lower stock levels to avoid New Year mark downs. It is remarkable that about two thirds of the retailers surveyed have not recognised the need to change.
The retail trading year now seems to have two critical periods; the 'golden third', October to the January sales and then the rest of the year. It is imperative that retailers are properly prepared for business in this vital period as retail cost growth is likely to continue to outstrip sales growth next year.
Both retailers and consumers agree on one thing in our survey, that 2009 will be the toughest on record.
There are likely to be clear winners and losers this year and we have already seen some casualties both on the high street and amongst suppliers to retail. This is likely to continue and possibly gather pace in 2009.
Tarlok Teji is UK Head of Retail at Deloitte.
