Christmas is coming

It won’t be a great Christmas, but we expect steady growth this year. We forecast 2.5% growth in the value of retail sales, excluding fuel in December, as reported by the ONS.


Time to look forward and assess the prospects for Christmas. We’ve been through the worst downturn and financial crisis since the war, but we’ve had a sustained period of growth since 2012 and that is unusual in the context of an economic cycle which normally lasts around 5 years.

There’s no doubt that there are problems on the horizon and 2015 may well see lower growth than 2014. But looking to 2016 and beyond there are considerable uncertainties.

  • How would the housing market react to rising interest rates?

  • What would happen if the UK voted to leave the EU?

  • Are we really over the worst so far as the eurozone is concerned?

  • What are the implications for the UK of slower growth in China?

Fortunately we only have to look forward to Christmas at the moment and it seems to us that consumer demand is holding up well. Retailers should be satisfied with the outcome of Christmas – it will be good, though not great.

Consumer confidence holding up

The next charts come from Mintel’s own financial tracker research and they illustrate the underlying fact that while finances have steadily improved consumer confidence has recovered and then stabilised.

The messages of the chart are that:

  • Confidence recovered when people began to feel that things were improving

  • Consumers are still cautious. Perhaps they are aware that there are underlying problems

  • But there is money to spend if people decide that they really do want to have a good Christmas.

The answers to two questions are shown here:

  • We ask, on a 1-5 scale “How would you describe your current financial situation” from “Healthy, I have money left over at the end of the month” down to “in trouble, I’ve missed payments on household bill or repayments”. The weighted average of these responses is shown in the line labelled “state of finances”.

  • We as, also on a 1-5 scale – “How does your financial situation compare with a year ago”, from “a lot better off” to “much worse off”.

Figure 1: State of consumer confidence, 2009-15
Base: 2,000 internet users aged 16+
[graphic: image 1]
Source: Lightspeed GMI/Mintel

Retail sales in 2015

We cover the recent record of retail sales and inflation in the ‘Retail Sales’ section of this report. The message is that retail sales have been marginally weaker this year, but no more than could be explained by falling inflation. In fact volume sales have been stronger.

Figure 2: UK retail sales year on year growth 2012-15
[graphic: image 2]
Source: Office for national Statistics/Mintel

We think that there’s another underlying message here and it comes out of the next chart. What people really want to increase spending on is leisure. That was what suffered most in the downturn and now that real incomes are recovering (see the Retail Sales section – the gap between wages growth and inflation is bigger now than at any time since the consumer boom) that is what people really want to spend on.

That comes out of the next chart from the Mintel tracker. We ask “If you have money left over at the end of the month, what do you spend it on”. It is hardly surprising that savings is still near the top of the list. It has fluctuated at the top of the list with eating out. Eating out was at the top for most of 2015, but for the last couple of months savings has been top again – more evidence, perhaps, that consumers are feeling a little cautious.

For us the most important feature of this chart is that the first truly ‘retail’ item comes 11th – clothing and accessories. Everything above it is related to how one spends ones leisure time (apart from savings). We think that people cut back most on leisure spending in the downturn and it is that aspect of their boom time lifestyle that they are most anxious to rebuild.

Figure 3: What extra money is spent on, September 2015
Base: 2,000 internet users aged 16+
[graphic: image 3]
Source: Lightspeed GMI/Mintel

Black Friday

There is one important negative factor on the horizon – Black Friday.

There was a clear message from Black Friday last year. It damaged Christmas gift spending and it took some sales away from full priced sales over the Christmas period. However we believe that most people did not use Black Friday for gift buying but for snapping up ‘bargains’, especially electricals.

We discussed Black Friday at length in the Christmas shopping habits – UK, February 2015 report of February 2015 and came to the conclusion that the retail industry is collectively shooting itself in the foot. It was led by US retailers – notably Amazon and Asda – and, as one retailer put it, the genie is now out of the bottle. We think that UK retailers will concentrate on damage limitation from now on, though it is clear that no one feels that they can really ignore it.

The question is whether Black Friday will be more or less damaging than last year because that is a very important factor in how much money people have left over to spend on Christmas. We take the view here that it will be no worse than last year. We feel that retailers learnt their lesson last year and that this year the focus will be more on long-term profitability. Even those who were reasonably optimistic after Black Friday, especially Currys, realised that whatever their profitability over Black Friday itself, the event hit demand for electricals well into the New Year.

What are we forecasting?

It is worth being clear about what we are forecasting, because the concept of “sales over Christmas” is very vague.

We forecast the growth in the value of retail sales in December as published by the ONS towards the end of January.

2.5% year on year growth in December

So if we bring all that together:

  • Confidence is holding up and people are actually better off as well

  • The housing market remains remarkably buoyant

  • Retail sales growth has been falling, though that is because of falling inflation.

  • People really want to spend more on leisure than in retail

  • Black Friday will be no more damaging than last year.

The logic of those trends allied to the weak retail sales trend is that demand will be relatively subdued in December. There has to be considerable uncertainty over the forecast and if, for example, Black Friday turns out to be bigger this year then that could be the difference between 2% and 2.5% growth in December. But we feel inclined to be more optimistic than that:

  • People are better off

  • Their reaction to uncertainty can often be to take the view that they’d better have a good Christmas now because they may not be able to do so next year.

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