Christmas 2008 and the post-Christmas January Sales brought an extraordinary year in retail to a close.

The ‘credit crunch’ rapidly turned into meltdown in financial markets in October 2008 when the banking crisis exposed the extent to which banks had overlent. As a consequence, the economy was drawn deeper into recession as consumer confidence, already weakened by falling house prices and rising unemployment, was further undermined by falling asset values, tighter credit, and widespread uncertainty and insecurity about the future.

Christmas 2008 gained early billing as potentially the worst Christmas in living memory and the failure of a number of major retailers in early December certainly gave the impression that this was going to be the case. But, heavy discounting by Woolworths’ administrators (to ensure that the business was wound up devoid of stock) altered the competitive environment and may have actually helped stimulate spending as other retailers reacted with aggressive promotions to maintain market share and ensure full sell through of seasonal merchandise.

The second half of 2008 was very challenging for retailers, but the prospect of a period of prolonged recession, or even depression, looks daunting. This report provides insight into how consumers responded in 2008 and assesses how they might react to worsening economic conditions in 2009.

Key themes

How did recessionary pressure affect trade over Christmas 2008?

Who has been most affected by the state of the economy?

Did people cut back on luxuries and spend more on essentials?

Did the failure of several major retail businesses depress or stimulate spending?

How important were pre-Christmas promotions and did some retailers panic too soon?

Did online fare any better than store-based retailing?