UK shoppers are planning to cut back on spending in the run-up to Christmas as they face rising inflation and economic uncertainty. But at the same time, retailers are expecting to sell more this year, a new report suggests.
Research from Retail Economics and Metapack, suggests that shoppers across Europe will cut back on their spending on non-food products this Christmas. In its Holiday Trends Shipping Report it calculates that Christmas shoppers will spend £36bn less than last year across eight markets – the UK, US, Germany, France, Spain, Italy, Canada and Australia. In the UK, it predicts that sales will fall by 22%, or £4.4bn, compared to last year’s spending – a fall to £15.5bn in 2022 from £19.9bn last year – while in France shoppers will cut back by 11.5%, or €2.1bn.
The report questioned more than 8,000 shoppers across the eight markets and found that across them, 58% expect to cut back on spending – rising to more than 70% among UK shoppers. The reduction comes as shoppers come to terms with inflation. Asked about the main factors affecting plans for Christmas spending, the largest group names inflation (28.8%), followed by economic uncertainty (18.3%), a lack of savings (11.6%), and a loss of earnings (11.5%). In the UK, 38% of shoppers identify themselves as ‘distressed’, from four choices that also include ‘undeterred’, ‘stretched spenders’ and ‘secured but concerned’. The reports suggests that across markets, 34% of shoppers are facing financial distress as they approach the holiday season. It also finds that less affluent shoppers are more likely to shop in-store while more affluent buyers will shift online to a greater extent.
Only 29.7% of UK respondents said they did not expect to cut back at all on their non-food festive spending, while 40.1% said they would cut back across all related spending. That was the highest in any of the markets, and followed by Spain where 38.2% said they would not cut back and 32.8% said they’d cut back across all spending.
At the same time, retailers appear to be expecting sales to rise this year, with 48% of large businesses planning for orders to increase in volume, and 27% of small retailers expecting an increase of more than 10%. Retailers also appear to be changing their delivery strategies, with 35% looking to increase delivery costs and 26% planning to change delivery timetables. More than 18% will increase promotions and 10% want to shop offering free returns.
However, almost a third of shoppers (30.3%) say that they look first at the cost of delivery when deciding where to buy online, while speed of delivery (20.8%), convenient delivery (18.7%), convenient returns (18.3%) are also important – followed by visibility, such as through tracking (14.5%) and the carbon footprint of the delivery (10.4%).
The categories that look set to be hardest hit include clothing, where the study found that 26% of shoppers want to cut back, followed by electronics (22%), toys (20.9% and homewares (19.8%).
Richard Lim, chief executive of Retail Economics, says: “Inflation is set to peak at exactly the wrong time for retailers. Shopper’s budgets are already under intense pressure with inflation reaching decade-highs across international markets. Consumers are concerned, budgets are under pressure, and households are intending to cut back this year as they struggle to make ends meet.
“Against this weakening consumer backdrop, retailers are also facing a pincer movement of rising input and operating costs which is testing business models to breaking point. With profit margins under intense pressure, some retailers are planning to pass on costs through delivery and returns options, precisely the areas that encourage consumers to seek out alternatives.”
Andrew Norman, general manager of delivery management software business Metapack, says: “As we head towards the festive season, consumers and retailers are facing hugely uncertain times. Rising inflation and the cost of living crisis are having a significant impact on the economy and this will dictate not only consumer spending habits but also retail strategies as they look to keep operating costs down and capitalise on what historically is the biggest shopping period of the year.
“”Our research highlights that retailers are forecasting growth this peak season, while consumers are looking to reduce their spending. There is a gulf that needs to be addressed between retailer expectations and consumer sentiment, and one that will need to be navigated carefully through this current economic climate. Successful retailers should consider implementing an omni-channel strategy that appeals to a wide range of consumers.”