Why growth in 2019 is all about share and where to invest to achieve it
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Retail performance over Christmas was not as dire as the media predicted. Shoppers were cautiously festive as real earnings grew. Black Friday popularity held up. Online grew too and shoppers told us that 50% of their Christmas spend came from the High Street. But footfall decline did accelerate and overall shoppers estimated they spent less.
Taking this, and the global economic outlook into account, our predictions for 2019 are for relatively flat economic growth – Brexit outcome depending. We expect to see consumer spending caution increasing, borrowings to fall and spending cutbacks across the board. So the route to growth lies in taking share from other players. For more on how to win in this environment and our predictions for retail in 2019, read on, or download our 2019 Retail Outlook Report
The expectation is that UK GDP will continue to grow at 1.4%. But, growth is likely to slow in all three of the world’s major trading blocs—China, the US and the Eurozone. Our Annual Global CEO Survey, reported a record jump in pessimism—with nearly 30% of CEOs expecting global GDP growth to decline, compared to a mere 5% last year.
There are a number of factors which we believe will impact consumer spending. Real earnings are projected to increase in 2019, putting more money in consumers’ pockets but consumer expenditure is increasing at a faster rate than disposable incomes. In the past households have filled this gap by taking on debt. There there are limits though to how much further this can go as interest rates edge up, the housing market remains subdued and consumer credit regulations tighten supply.
We expect to see continued moderate growth in consumer spending of around 1.5% in 2019, provided there is a smooth Brexit.
Brexit has started to affect how much people spend and on what —varying significantly by region and demographic group. 27% of consumers say they’ve already changed their spending because of Brexit, and 13% say they will do so during 2019.
Between a quarter and a third of people say they plan to spend less on discretionary categories. The chart shows the % of respondents who said they would spend more (above the line) or less (below it) this year. It's ordered on the balance of option (net result). The only category where the net result is positive, is Groceries. But, consumers told us this was because they anticipated rising prices. Interestingly Holidays are usually higher on this list, than 4th position, but in uncertain times, shoppers are clearly protecting spend on the things that matter most. As a result Children & babies and Health are then the categories which will see the lowest net spend reductions.
In 2019 we predict shoppers will shop smarter. Even the 28% who will increase their grocery spend say they’ll shop around more, buy more on promotion, and buy more own label. In clothing the 14% who will increase their spend intend to buy fewer items and/or buy them in sales. And the 11% who will spend more on eating out will also cook at home more, spend less in their usual restaurants or seek out cheaper ones.
Source: PwC Consumer sentiment survey December 2018 (n=2,053)
In a period of flat growth, the only practicable way to achieve incremental retail growth is to take market share away from other players. The question is how. We believe there are three key areas of focus to drive share: