Retailers face a challenging Christmas shopping season, says KPMG research

Now with a new Prime Minister (yes, another one) ushered in, the economic and political climate in the UK should for the time being calm down and stabilise, we hope, and we can start thinking about Christmas which is just around the corner. 

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In the face of a global economic and financial crisis, this year’s Christmas shopping season could be marred by the rising prices as consumers count their pennies.  But new research suggests Black Friday sales and the World Cup are expected to boost food sales alongside Christmas gift buying despite the cost of living crisis in November and December.

A new research by KPMG/Ipsos Retail Think Tank (RTT) members suggests that while UK consumers contend with rising energy bills and interest rates, retailers face a "challenging" Christmas shopping period, with the health of the sector seeing its biggest "golden quarter decline" since 2011.

The latest assessment revealed the health of the retail sector is expected to decline by two points to 70 points in the final quarter of this year. (See  RTT original report HERE.)

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As reported by Yahoo!Finance on 25th October 2022, that is a drop in Christmas trading not seen since 2011 where growing uncertainty in the European and global markets kept consumer confidence low.

According to the Retail Health Index (RHI), a combination of pressure on margins, rising costs and shaky consumer demand are predicted to produce the difficult trading environment.

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Paul Martin, head of retail at KPMG in the UK commented: "The health of the retail sector continues to slowly deteriorate, and it has been over a decade since we have seen a two point drop in the health index during the vital golden quarter." 

The economic and political turmoil are yet to "trickle down" to consumers, according to Martin, who added that while economic and political uncertainty influence the health of the retail sector, the usual festive boost will not be enough this year to counteract the ongoing issues that retailers are facing with rising costs, squeezed margins and fall back in demand.

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However consumers will still want to enjoy Christmas, with many choosing to spend on hospitality and enjoying time with friends and family.

"Many will be looking to trade down, search out bargains and purchase less – but Christmas is by no means cancelled – despite the mood music around an impending recession," said Martin.

But the RTT noted Black Friday (November 25th 2022) sales and the World Cup (November 20th to December 18th 2022) are expected to boost food sales alongside Christmas gift buying despite the cost of living crisis this November and December.

While Christmas 2020 remains challenging, experts predict promising consumers' festive spending

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      It is great that the current lockdown in England is coming to an end and shops and non-essential retailers can open again as from 2nd December, albeit with covid-safety protocol in place.  But the disappointing news today is that two retail giants – the Acadia group and Debenhams are not able to survive, although their problems began even before the pandemic.  It is really the usual tale of only the fittest can survive as consumers are ever more discerning and continue to embrace online shopping.

     Administrators have been appointed to Sir Philip Green’s Arcadia (behind brands such as Dorothy Perkins, Topshop and Miss Selfridge) while Debenhams will now go into liquidation as JD Sports has walked away from potential takeover of Debenhams, which was founded in 1778 and is one of the oldest high street chains in the UK.

Nevertheless, shoppers will be happy that they can earnestly get into the Christmas spirit as latest research from market research expert Mintel reveals that most Brits are striving to have a good festive period with their spending  predicted to decline by just 0.4% compared to 2019.

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Mintel expects retail sales in both November and December (both in-store and online food and non-food) to hit £81.7 billion, declining just 0.4% compared to last November and December when sales reached £82.0 billion. Sales through non-food retailers this November and December are expected to reach £33.3 billion. 

Online demand has soared since the COVID-19 pandemic, and is expected to make up a record level of sales during the Christmas period. Half (51%) of consumers say they plan to buy more Christmas gifts online this year, rising significantly among those aged 16-34 (58%) and falling a little among those over 55 (44%).  

Overall, Mintel estimates that internet pure players (online only retailers) will account for £15.7 billion worth of sales in November and December. This comes as almost three quarter (72%) of Brits plan to try to limit time in crowded areas before seeing their family at Christmas.

And it seems the festive period is proving to be more important than ever as 77% of grocery shoppers say it is important to have a good Christmas after the events of 2020. 

"The festive period is, for many consumers, a time to forget their worries and celebrate with loved ones."

Nick Carroll, Associate Director of Retail Research at Mintel, said: “The COVID-19 pandemic has polarised consumer finances. Some have been able to work throughout the outbreak and have seen some outgoing costs, such as travel, reduced, but many have seen incoming costs reduced, through furlough or lost jobs due to the pandemic. Irrespective of the scenario, households find themselves looking toward the uncertainty of 2021, particularly with the end to Government intervention in the job market. As a result, consumers have been less willing to spend since the pandemic hit and these fears will naturally be at play in the background of this festive period. 

“However, the festive period is, for many consumers, a time to forget their worries and celebrate with loved ones, and few years have limited consumers’ ability to do both like 2020. If, as we expect, rules are relaxed a little for the festive period***, customers will be wanting to make this Christmas as special as possible and purse strings are likely to be released more than they have been so far in 2020. Value will remain crucial but those that have been able to save during the pandemic may look to release some pent-up demand; while those who have been impacted financially will do what they can to ensure they can still make this festive period special.”

***The UK Government and devolved administrations have agreed a temporary relaxation of measures, which will allow three households to mix in a bubble from December 23 to 27.

Season's Greetings

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Have a festive and joyful Christmas season!

Festive decor in the Peninsula Hotel, Hong Kong, December 2018. Photo by Alan Tyler.

 Deloitte reports record pre-Christmas discounts in the UK

According to Deloitte business services and research specialists, discounting during this pre-Christmas season is at record levels in the UK, having had analysed 800,000 products while revealing that discounts is on average around 44%, and possibly rising to 48% by Christmas eve, well ahead of the traditional clearance period.

Deloitte is expecting discounts to hit on average 52% from Boxing Day.

The experts feel that the recent mild weather has affected consumers' buying appetite for merchandise associated with the cold such as coats and boots, as well as knitwear which are traditionally desirable gifts.

 "We expect retailers to ramp up their discounting

 earlier than normal in an attempt to clear stock.”

Deloitte also said that the markdowns stores have applied as a result of the weak Autumn/winter 2018 season are spread "very wide" across the market.

Jason Gordon, Deloitte's lead consumer analytics partner, has reported that in recent years consumers have come to expect retailers to heavily discount products in the lead-up to Christmas which this year will fall on a Tuesday.  This means the shopping season will be shorter as consumers will use the preceding weekend to travel, thus resulting in potentially fewer crucial trading days for retailers.