Shoppers will spend more than ever in the run-up to Christmas, retail analyst Verdict Research is predicting this week.
However, with incomes squeezed by mortgage costs and wages rising only slightly, consumers will rely on credit to fund their festive spending and will be forced to tighten their belts in the New Year, making trading far tougher, particularly for retailers of home-related items.
Despite concerns that waning consumer confidence will result in a weak Christmas for retailers, Verdict expects retail sales in the final quarter of the year to reach £77.9b, or £1,300 per head – a 3.8% increase on last year.
“Shoppers never want to be seen as mean at Christmas and will postpone any cutbacks until the New Year,” says Verdict retail analyst Nick Gladding. “However, having already run down their savings this year, consumers will need to rely heavily on credit to fund their seasonal generosity.”
The stretched state of consumer finances will make shoppers particularly responsive to retailers offering value, says Verdict. It also believes advertising will be particularly important for retailers in attracting shoppers. Larger retailers that can justify the expense of television campaigns are likely to gain share from smaller operators, it predicts. John Lewis, for instance, has tripled its festive campaign budget, while Tesco has enlisted support from the Spice Girls. Smaller retailers will have to adopt lower-cost initiatives like viral marketing and email campaigns to ensure they do not lose out.
Verdict also predicts that online will be a more important channel than ever before this Christmas. It says there will be intense competition for online share of wallet, with grocers now viewing online sales as a key channel to boost non-food sales. Tesco Direct’s non-food offer is much more substantial than a year ago, while Asda and Sainsbury too have been augmenting their product offer. Argos and Woolworths also see their multi-channel platform as a key competitive weapon. Verdict expects online sales in Q4 to grow by 40% this year to reach £4.8b, equivalent to 6.1% of all Christmas spending.