As is tradition in the October edition of Mintel’s UK Retail Briefing we look ahead to the Christmas period and give our predication for growth in retail sales during December (+4.0% for those of you who do not like scrolling).

We highlight our reasons for coming to these conclusions below. For context these predications have been made in the lead up to the 31^st of October, a point in time when the Government has secured a withdrawal agreement with the European Union but it has yet to pass through Parliament and in reality all Brexit outcomes, deal, no deal or delay, are still very much on the cards.

Our predication for December is based on the retail sales data from the ONS, as this is the data most broadly used to inform our forecasts within Mintel. For reference we use the non-seasonally adjusted figures.

Looking at the data over the past three years there are some notable trends. Firstly average value sales growth has slowed each year, from 4.3% in 2017 to 4.1% in 2018 to now 3.9% for the first nine months of the year. This matches the easing of inflation (see below) and indeed during this period we have seen volumes steadily improve to the point that value and volume growth are now broadly aligned.

Whilst value growth has eased, the fact that retail sales growth has averaged 3.9% growth in 2019 indicates that demand has held up relatively well despite the uncertain backdrop.

Figure 1: Retail sales growth, value and volume, Jan 2017- Sep 19

Source: Office for National Statistics/Mintel

Splitting the data roughly into food and non-food, shows that while food retail sales have held up – with a particular positive upward trend in the past three months, growth in non-foods overall has slowed in 2019.

Whilst the specialist clothing retailers have had a better 2019 to date, furniture, household electricals, DIY and other big-ticket or associated categories have seen sales growth slow. As we outline further below this is a trend that has been particularly notable in the second half of 2019 so far as uncertainty in the market seems to be weighing on high value purchases.

The curious aspect of the uncertainty in the market at present is that on most other metrics this is an environment that should be positive for spending and retail demand.

The graph below shows the continued growth in real incomes, a trend that has been present in the market for over 18 months now and should be feeding into consumer spending power. Couple this with low unemployment and still relatively low-interest rates the macro-indicators for consumer spending remain broadly positive.

Away from Brexit there are of course concerns. GDP growth has slowed and on a global scale the USA-China trade war continues to create an unstable global economy. However such factors rarely feed directly into consumer spending decisions, and the holding back of any demand at present is of course directly linked to the continued uncertainty around Brexit.

Figure 3: Average weekly earnings: inflation versus wage growth, 2016-19

Source: Office for National Statistics/Mintel

It is firstly important to note that overall confidence remains strong. In the latest data for September 2019 in general consumers are more confident in the current state of their finances compared to last year and are broadly just as confident about future prospects as they were 12 months earlier.

However we cannot ignore that on two of the three metrics, we have seen the beginning of a downward curve, in particular in terms of future financial confidence. It is clear that as the October 31^st deadline has approached, consumers have become more nervous about the impact of Brexit on their finances.

Within the more detailed data (see: Consumers and the Economic Outlook – UK, September 2019) we have also seen the number of consumers adding to, or looking to add to, their savings tick up – indicating that worries are not simply affecting perceptions of finances, but how consumers are planning and spending. The slowdown in retail sales in sectors such as furniture and major electricals could be seen as proof that this behaviour is taking place.

Figure 4: Mintel’s Financial Confidence tracker, Jan 2017- Sep 2019

Base: 2,000 internet users aged 16+

Source: Lightspeed/Mintel

The main concern moving into the Christmas period is that the UK will still leave the EU without a deal. Although the Benn act gave an assurance that the Government must ask the EU for an extension to the negotiating period should no deal be agreed by the 19^th of October, which it has done, the fact that letter was delivered with another recommending the EU does not agree to this extension has clouded this issue.

The EU is unlikely, although it is not impossible, to favour a no deal outcome but it is worth considering its impact particularly on Christmas.

Mintel conducted bespoke one-off research into the impact of no-deal across various segments. One of the statements, as shown below, related to Christmas gifting and found that in general the majority of consumers would not plan to change their gifting spending in the wake of a no deal. More (27%) said they would be less likely to spend generously in the event of no deal than would be more likely to (12%). Notably there was a more even spread between more/less likely responses among those aged 16-34.

This speaks to a wider trend we have seen over the past couple of Christmas periods, the ‘worry about it later’ mentality some consumers take on during the Christmas period. Indeed last Christmas faced similar concerns around Brexit due to the deadline in early 2019, and we found that 21% of shoppers, rising to 35% of 16-34s, agreed it is better to have a good Christmas and worry about the cost later. Not all shoppers have the luxury to do this, and agreement to this statement and positive to the statement below were of course higher among more affluent shoppers, but this is certainly a behaviour we have seen across certain demographics, particularly younger shoppers, in recent years.

In reality should the UK experience a no deal Brexit there will be unavoidable impact on consumers, with tariffs an obvious immediate impact on Christmas spending. However should a delay happen it is likely we will see consumers react in a similar way to last year, and indeed if a deal is struck we could see loose purse strings which may have been tightened, in the final months of the year.

Whilst the result of the October the 31^st deadline has clear implications for spending after this point, a good deal of Christmas spending comes before this point.

Indeed last year we found 39% of Christmas shoppers had purchased gifts in October or earlier. Given further Mintel data shows there are significant concerns around the impact Brexit, in a deal or no deal scenario, will have on prices of goods – in particular in-home food, clothing and household care products. In part this is why in September we found that 21% of grocery shoppers had already stock-piled products ahead of Brexit, and in October we found that 19% of beauty and personal care shoppers had stock piled products ahead of Brexit.

In reality in terms of the grocery sector the reality of stockpiling a Christmas dinners worth of products in October isn’t viable, however we would expect in terms of gifting for more shoppers to have looked to buy earlier, and ahead of the 31^st of October, which may have an impact on December trading.

Figure 6: When shoppers begin buying Christmas gifts, December 2018

Base: 1,738 internet users aged 16+ who bought Christmas gifts and specified when they started shopping

“When did you start your Christmas gift shopping this year?”

Source: Lightspeed/Mintel

Another major event threatens to pull spending away from December, although this culprit is not new with Black Friday now firmly engrained in the retail calendar.

Last year 39% of consumers purchased items during Black Friday 2018, with 58% of these delaying planned purchases until the event and 67% purchasing some items as Christmas gifts.

The timing of Black Friday in 2019, combined with a potentially more promotion-hungry shopper, could make the biggest edition to date. Black Friday itself falls on the 29^th of November meaning it falls both after the November pay date for most shoppers and falls just 26 days, or just under four weeks, from Christmas day itself.

This mean it could disrupt trading in December more than usual. However in terms of the retail sales data from the ONS, this is unlikely to be shown – with the period covered by the December 2019 figures ranging from the 24^th of November to the 29^th of December. This is a similar five week period as was reported in 2018 (25^th of November to the 29^th of December) but of course last year’s figures only included Cyber Monday, whereas in 2019 the December figures will cover the week leading up to and the event itself.

Writing in the lead up to the 31^st of October, there are far more variable factors to consider than usual when we are putting together our predication for growth in the December period.

However considering all the evidence, and making estimates based on either a deal or a delay outcome to Brexit, we predict it will be a steady and broadly positive Christmas for the retail sector. Of course no deal has the potential to significantly shift this, and in this event we of course would revise our predictions.

In the event of a deal or delay, the macro indicators should remain positive for the sector moving into the final two months of the year – real incomes should remain in growth, unemployment will remain low and whilst in the event of a deal we may see interest rates rise, this is very unlikely before Christmas.

There are of course concerns, the slowdown in big-ticket categories for one. However for the month of December these are categories which are not the focus of spending – indeed if spending has been held back in these areas it may leave a little extra, should consumers be willing to spend it, for gifting and in-home food and drink.

A greater level of November/December demand may have been pulled forward into October than usual due to concerns around price rises. It is non-foods where this impact may be seen, there is of course some stockpiling going on but the majority of food spending as it always does will fall in the immediate weeks leading up to the day.

Black Friday is a major disruptor to the figures this year, its inclusion in the December data makes our predication for growth in the December figures look a little better than if it had not fallen within the period. We would expect Black Friday to be as big as it has been before, if not larger simply due to its timing so close to the end of the month and Christmas.

So ultimately this all brings us to our predication of overall sales growth for December of somewhere in the region of 3.5-4%, with the figure likely to be around the 4.0% market should Black Friday live up to expectations. This is made up of growth of around 2.5% in the grocery sector and around 4.5% growth in non-foods. Excluding the impact of a bulk of Black Friday sales falling into the figures this year growth would be estimated to be closer to 2.5% (2.8% in food and 1.9% in non-foods).