Consumer confidence is shown to be at record lows ahead of holiday quarter, and rising inflation and food prices could see consumers reducing their expenditure this festive season.
Michael Hewson, chief market analyst at CMC Markets tells Digital Journal: “With consumer confidence already at or close to record lows, it’s likely that consumers — if they do have money to spend — are probably holding back ahead of the end of the year and the Christmas period.”
Retailers have reported U.K. sales slowing in October 2022. Data from the British Retail Consortium shows that sales increased 1.2 percent in October on a like-for-like basis, down from a growth rate of 1.8 percent in September. High street footfall fell 11.6 percent versus October 2019, a more comparable period as it was pre-COVID-19, and shopping centre footfall dropped 21.8 percent from pre-pandemic levels.
“As we look towards the end of the year, the pressure on the UK consumer is unlikely to diminish, although we could well see a pickup in retail sales spending in the lead-up to Christmas,” Hewson adds.
Looking at the current period, consumers will likely become picky about what they buy. Inflation climbed to 11.1 percent in October (up from 10.1 percent in September), driven largely by a 16.2 percent rise in food prices.
Data from the Office for National Statistics shows that milk, cheese and egg prices alone spiked 27.3 percent last month, while bread and cereals increased 15 percent in price. There will be many consumers forgoing high ticket food items and prioritising basic food items over turkeys, stuffing, Christmas puddings and all of the other trimmings.
Where they buy from will also become a bigger deciding factor. Consumers with higher disposable incomes who would usually shop at premium supermarkets like Marks & Spencer may switch to lower costs stores. This could potentially lift seasonal sales at Tesco and Sainsbury’s, both of which run Aldi price match schemes.
Confectionery and gifting
According to research by Kantar, UK shoppers are placing 3 percent fewer items in their baskets compared to 2019. Purchases of larger pack sizes are up 1% as more shoppers are opting to buy in bulk to save money. Consumers deciding to shop cheaper retailers and purchase budget products and own-label value ranges is contributing to a 4 percent reduction in spending.
Breaking down shopping habits by category, Kantar found that seasonal gifts and confectionery are most exposed to consumers tightening their purse strings, with 21 percent and 23 percent of the spend in those categories respectively coming from households that describe themselves as struggling financially.
Fewer consumers willing to open their wallets for luxury items could impact posh purveyors of chocolate, which could sour Hotel Chocolat’s seasonal sales, for instance. Although The Hut Group (THG) reported that its beauty, health and wellness segments were holding up well amid the cost-of-living crisis when it delivered a quarter 3 2022 trading update in October, the online retailer’s top line could become impacted if consumers decide that gift sets are a discretionary item that they can’t afford this year.
Hewson explains: “Beyond Christmas, the retail environment is likely to remain challenging until inflation and prices come down, putting retailers’ bottom lines under pressure.”
While seasonal sales will not determine the fate of most retailers, it remains a possibility that more unviable businesses could collapse.
