The trends we’re expecting to see this Christmas and what it means for retailers
2019 has been another challenging year for the UK retail sector, perhaps even more than expected.
Economic and political uncertainty has led to spending restraint from consumers and poor weather since September has impacted footfall, with consumers shopping online or not at all, rather than battling the elements on the UK high street. Meanwhile, operating costs from staff to business rates have continued to rise, squeezing retailers from both ends of their profits and losses.
The last few months have seen a number of high-profile casualties, as retailers have struggled in this unforgiving operating environment.
But there are always positives in the retail sector. Some successful operators have continued to grow, seemingly against the odds, both online and on high streets. With most retailers’ profits generated in the last two months of the year, there are still plenty of opportunities to succeed over the festive period.
This year has the added distraction of the general election. This may discourage footfall in the critical first two weeks of December, although there could equally be a consumer spending post-election bounce, particularly if it provides us with improved political certainty.
And there’s no question that consumers are still looking to spend. As our consumer sentiment report showed earlier in the Golden Quarter, shoppers’ perceptions of their personal financial situations have remained remarkably resilient.
Consumers may be looking to spend slightly less this year, but the lure of Christmas certainly remains - we each plan to spend around £400 on presents and celebrations. And that includes festive food and groceries, which are the last areas that we cut back on over Christmas.
In the final weeks before Christmas, there are still reasons for retailers to be optimistic, provided they can deliver what their customers are looking for. But it’s certainly going to be a nail-biting one, with shopping happening later and right up to the wire on Christmas Eve.
Here are our 12 predictions for the UK retail sector over this festive season. Please get in touch if you’d like to discuss how the peak trading season or any of our predictions might affect your business.
Make sure you join us in January at our annual post-Christmas review, to see how our predictions fared and to look ahead at our forecast for 2020.
Retailers may have to work harder this year to persuade British shoppers to part with cash. The average Christmas spend looks like it will fall to an average of £408 (from £421 in 2018) with a majority of people simply being more cautious with their spending (53%) this year. While a drop from last year, it is still a significant amount, which is admirable considering economic and political unpredictability.
Not surprisingly, families are likely to spend the most on Christmas presents, with 35-45 year-olds spending an average of £482. Even so, this is 8% less than last year, demonstrating the decline in sentiment we saw in our recent survey.
There isn’t a great deal of spending variation across the regions, but shoppers in Wales appear to be the most generous this year, spending an average of £450. The South West intends to spend the least on presents, at £364 per person. Yorkshire and the Humber is set to see the biggest rise in spending this year, up by £56 on average (to £426).
Our recent Consumer Sentiment Survey suggested that customers still had intentions to spend. However, the results showed a decline in Autumn vs Spring overall and were the worst Autumn sentiment results since 2014, with a net sentiment of -7.
In an already challenging run-up to Christmas for UK retail and leisure, the general election, Brexit worries and inclement weather will likely impact spending and high-street footfall. Despite all these considerations, though, it is notoriously difficult to dampen shoppers’ festive cheer and their ability to spend during the season of goodwill.
Despite financial pressures, the British consumer refuses to compromise on Christmas dinner. This year, food and drink is the only category in our survey where spending looks like it will remain consistent. But because cutting costs here is non-negotiable for most, it’s other categories that will see spending squeezed, particularly on Christmas non-essentials such as homewares (a net decrease of -27%).
Even categories that traditionally perform well over Christmas may struggle. Health and beauty, which usually receives a boost at this time of year from Christmas parties, social events and shoppers buying stocking fillers, will see a net reduction of -17%. We expect shoppers to spend less on make-up, in particular, as people move towards ‘clean skincare’ and more natural looks.
With consumer sentiment slightly more positive amongst men than women, could men’s categories buck this trend? For example, there are signs that men’s beauty (currently just over 1% of the market) could grow faster than the category as a whole, as younger shoppers take more interest in grooming. Menswear has also proven more resilient in the last year and may continue to outperform wider fashion.
This year people are less interested in getting some winter sun, or are perhaps waiting for more economic and political certainty before committing to it. Holidays and days out will see a net decrease of -21%. This echoes findings in our Consumer Sentiment Survey, which showed shoppers cutting back on big-ticket items and leisure. With less disposable income, consumers are being more pragmatic about what they spend their money on.
In contrast to last year, even toys and pets are not immune to cutbacks, if our survey findings are anything to go buy.
So what are we looking to buy our kids this year? With no major games console launches and a relatively sparse film slate of sequels (e.g. Frozen 2, Toy Story 4) rather than whole new franchises, toy retailers’ top product lists have reverted to more traditional items, such as plush toys, dolls, action figures and activity-based gifts. There is an element of simplicity to the best sellers, with many being more affordable and less technology-driven than in previous years, perhaps reflecting the more restrained spending environment.
We also expect to see an increase in sustainable gifting. Not just practical gifting as we saw last year, but also conscious gifting such as reusable water bottles, vegan-friendly and ethical gifts.
Christmas shopping seems to be happening later every year, making retailers increasingly anxious. Although the majority of us claim to have done most of our Christmas shopping before the end of November, noticeably more consumers plan to delay present shopping until at least the weekend of Black Friday and Cyber Monday this year, with some leaving it until the week before Christmas.
As before, men intend to shop later than women, with our results suggesting some will even shop on (or after) Christmas day. This is presumably not those gifting a hastily wrapped box of chocolates or flowers from the local garage, but an insight into how retail has changed. The convenience of online and mobile allows shoppers to grab a bargain or spend that gifted money while relaxing in front of the TV after Christmas dinner.
Back in October, a report noted Brexit and a potential general election could "adversely affect" retailers this Christmas. When the EU departure date was again postponed, UK retailers were hopeful that consumer spending might be better than predicted. And then came the announcement of a general election.
For retailers, the timing couldn’t be much worse: 12 December is right in the middle of the most popular Christmas shopping period. Even after the election results - which retailers hope will provide certainty and increased consumer confidence - there will only be two shopping weekends remaining. It remains to be seen whether the election could negatively affect high-street footfall. However, with high street and shopping centre footfall already having consistently declined over the past two years, this could prove disappointing at such a critical time, particularly for store-based retailers.
Will more Christmas shopping be pushed online as a result? Or will there be a last-minute post-election rush that could benefit high street retailers?
Last year, consumers bought just under half of their Christmas presents in store, with a similar number also shopping online (49%).
Many experts think online is beginning to plateau in the UK, but this year we expect to see more online growth due to factors such as the short time between Black Friday/Cyber Monday and Christmas, the election hitting footfall, and growing confidence in online customer experience and delivery. This Christmas, consumers expect to spend £5 online for every £4 in physical stores.
We also expect to see real growth in shopping through mobile, particularly amongst women and in the time-pressured 35-44-year-old family demographic, who expect a third of their spending to be via mobile.
It’s not much of a stretch to conclude that a channel shift to online may lead to more high street store closures. We’ve already seen the worst ever H1 net store closures in PwC’s own research in conjunction with the Local Data Company, although this figure was caused largely by a lack of openings, with closures only increasing slightly.
We have already seen several high profile administrations and CVAs in H2 2019 and expect more in the next 12-18 months as retailers continue to adjust. Q1 is the most common time for CVAs, being after peak trading but in many cases before creditors and the March rent quarter are paid.
If a last-minute shopping rush fails to materialise, retailers should be prepared for a bumpy first quarter and more high street - and even online - casualties in the months ahead.
Despite all the turmoil on the high street, there are still success stories. There are retailers - and leisure operators - doing good things, and showing others that there are still opportunities to capitalise on.
Even in this difficult environment, certain retailers are thriving, including ones with no online presence at all, particularly in the value and discount sector. Shoppers are increasingly turning to these value players (and supermarkets) for their convenience, range and price position as they look to buy Christmas treats and presents but still reduce their spend.
And while older shoppers (over 55) are the only ones who expect the majority of their Christmas shopping to be done in stores, some retailers targeting streetwise younger shoppers are prospering by offering the latest styles and a destination experience that provides a reason to visit.
Likewise, the biggest destination shopping centres are also succeeding, often by combining retail and leisure attractions to offer a complete day out, in contrast to more traditional shopping centres that are experiencing footfall declines. For example, the two Westfield shopping centres in London reported a 7.1% increase in sales and a 6.4% increase in footfall in the first six months of 2019.
With just under 40% of Christmas spending expected on the high street, there are still lots of opportunities for retailers. Consumers still want a reason to go shopping and many still love the excuse to shop, especially in the festive season. Understanding what consumers want - and being able to execute that - is critical for high street success.
So far this year, while the volatility facing retail has been shared by leisure operators, the sector appears to have been less affected by the spending squeeze. For example, chain restaurant and pub sales have been positive for 18 out of the last 22 months up to October 2019, which is a significantly more rosy picture than the non-food in-store retail sector.
However, when finances are tight, leisure spending can be one of the first things to be cut. We have already seen this in restaurants, with closures of chains and consumers indicating they will cut back on eating out and going out. With consumers looking to save money while treating their families and themselves at Christmas, could leisure bear the brunt of this reduced spend?
For the first time this year, we asked consumers what their party plans were for the festive period. Increasing numbers appear to be shying away from going out, going to Christmas parties or socialising. While squeezed finances are part of the reason, we also believe that there’s a growing preference for simply celebrating at home.
We’ve already seen the lower footfall on high streets and the increase in online shopping, but another indicator is the growth of home delivery of prepared food. With delivery apps growing in popularity (and geographical coverage), home-delivered meals have grown by a staggering 10.6% a year over the last decade, far outstripping grocery (2.4%) and restaurants and takeaways (1.1%) over the same period. People can now order what they like and have it delivered to their home, rather than having to reserve a table, brave the weather and pay a surcharge on food, drink and service.
Whatever retailers do, it looks like the biggest winners this Christmas will be consumers. With stocks high due to Brexit stockpiling, high street overcapacity and weak trading over Autumn, and an even later shopping period than in previous years, there will almost certainly be bigger discounts and last-minute bargains for shoppers.
We’ll find out in January which retailers have capitalised on these trends the best.