Will consumers do Niente and will the Grinch Steal Christmas?
Neil Sharman, head of research and analysis, Telegraph Media Group, looks at the signs that retailers and economists will be reading in a nervous run up to Christmas 2011…
The difference between Christmas 2010 and Christmas 2011 can be illustrated by Eat Pray Love, the best selling DVD last Christmas. In one scene Italians tell Julia Roberts that they have Dolce Fa Niente, the soulful art of doing nothing.
Last year that sounded enviable. This year we might wonder how much Italy’s Dolce Fa Niente will cost us. 2010’s fear was a double dip but now we fear Eurozone meltdown, with Italy too big to bail, too big to fail.
Right now, nervous retailers and economists are praying for a decent Christmas but will British consumers start spending or do Niente. With 60% of the UK’s economy based on consumer spending, a weak fourth quarter would heighten the chances of another recession.
Among the forecasters, Mintel are the most hopeful, Decipher the bleakest. Mintel expect sales to be up 4-5% and volumes to be up 1%. Decipher predict a 0.6% year on year decline in December spending. Both agree spending will be propped up by inflation (hence volumes will rise less than spending). Two hopes to cling to; forecasters predictions were negative last year but revenues grew. Second hope – there was snow then and according to Mintel – “comparisons with the bad weather should be worth at least a point”.
Here are nine of the signs that retailers and economists will be reading…
People are starting to save, but what are they saving for?
Retailers hope they are saving for Christmas. M&S think people ‘protect’ Christmas despite the squeeze. Decipher says “people like to put their worries to one side at Christmas; however, this year financial realities will take precedence over emotion”. Verdict believes this will be a “selfish” Christmas with people more willing to absorb the increased costs of food rather than presents.
“Not all shoppers are feeling the downturn in the same way”, Nielsen says
“One in four reports having to cope with having no spare cash, which suggests the downturn is impacting some people more than others”. Their Homescan study shows that families are particularly likely to make savings on household expenses, empty-nesters less so. My last MediaTel article called for recognition of the importance of the less impacted Baby Boomer generation. Supporting that, an ICM poll showed that 70% of 25-44s will visit parents/in-laws over Christmas. Of them, 75% will be reliant on those parents/in-laws to fund festivities, of whom a third say they will be more reliant than ever this year.
Items people can’t afford for themselves will be given as gifts
With the average household disposable income down by 2.1% this year and Asda saying people have £15 a week less, Amex research shows 48% of people will use gift lists to avoid wasting the chance to get something they want or need. ICM show that 24% of 25-44s have asked parents/in-laws to buy something they would have bought earlier but couldn’t afford. Of these, 58% said this isn’t their usual behaviour.
People are searching and researching
BRC say “pressures on household budgets may be generating more online retail searches as people work harder to compare prices and track down value”. While searches grew at their fastest rate this year (and Christmas related searches started earlier), growth in online spending has actually slowed suggesting people are bargain hunting. Price comparisons, product reviews and trusted writers will play a part.
Spending online will grow to 10% of total spend over Christmas
Some of the big retailers will account for a lot of online spend – e.g. John Lewis expects to take around a quarter of its sales online, compared with a running rate of around 20% through the rest of the year. Deloitte estimate that 40% of all transactions are being influenced by web research. Retailers are getting clever in their approach, mixing up online and offline solutions through tactics such as mobile ordering, online kiosks in stores (increasing the range in smaller stores by up to five times), home delivery, free WiFi in stores, sales ‘previews’ on Twitter pages, ‘secret sales’ promoted on Facebook, “click and collect” points and apps. On Cyber Monday (5 December), the busiest online shopping day before Christmas, The Telegraph are offering a retailer online dominance of telegraph.co.uk.
Mobile Christmas shopping is becoming more important
A lot of the increase in online spend will be down to the increase in mobile commerce for price comparisons, ordering and checking stock availability. Last year M&S launched a transactional mobile website and, this year, many retailers are following suit. Kelkoo note that Britons will account for 45% of all European m-commerce this Christmas and mobile shopping will account for 11% of all online sales. For a few days before Cyber Monday, eBay will open a shop off Oxford Street in which shoppers can scan their phones over goods and purchase them that way.
Retailers are trying to appeal to consumers’ desire to start early and spread costs
This they are doing through discounts, vouchers, loyalty schemes, own label launches and earlier exposure of Christmas items. Kantar say volumes of seasonal biscuits are up 8%, attributed to retailers putting them on shelves (and in newspaper ads) earlier. Debenhams launched a ‘pop-up sale’ in which they dropped prices by up to 40% for five days in November.
Consumers are still holding off
The ONS talk of a good October but retailers say it did not provide a solid foundation. In the CBI distributive trades survey 24% of retailers said sales volumes were higher in October compared with a year earlier, while 36% said sales were lower. The Hobbycraft Chairman warns that “over recent years, shoppers have got to know the key signs of distress in the retail sector, and there is no time when they look out for them as keenly as when Christmas approaches”.
However, waiting for sales pre-Christmas may be in vain. Mintel believe retailers have played it wisely, taking “a very cautious view they are, therefore, likely to be under-stocked. That may not be ideal, but it means they should achieve a relatively high rate of full price sales. Only the major underperformers are likely to be on Sale”. Are they right? Or are Deloitte right when they predict discounts at 2008 levels with up to 90% off from the 12 December – a domino effect hitting even the better prepared retailers?
The weather forecast
Last year the snow prevented last minute shopping and stopped deliveries arriving before Christmas. Online growth figures were stinted as the threat to deliveries put buyers off. This year unseasonably warm weather could be the catalyst that causes that domino effect. Clothing retailers are not shifting their winter fashions. Moving from warmth to fog and forecasted ice is not the ideal transition. Cold, crisp and clear days would bring shoppers out in greater numbers. Notably Mintel say their rosier prediction is dependent on it.
It’s a face-off between Austerity and Christmas. Austerity is jumpy, with a price slashing knife. Christmas has a starter pistol that’s failing to fire. Even Mervyn King says “who knows what’s going to happen tomorrow, let alone next month”.
But what is clear is who hope lies with. It lies with those savers saving for Christmas. It lies with the parents buying presents and funding festivities. It lies with the careful gift hunters, searching for perfect ideas. It lies with the online innovators and the dexterity of mobile. It lies with the stock buyers, have or haven’t they overstocked? It lies with the weather and the right kind of cold. And it lies with the retailers, their controlled promotions, enticing displays and their advertising reach.
If all these groups come good, we might yet avoid a Q4 of Niente – and the Grinch might not steal Christmas after all.