Deloitte predicts 1 per cent increase in the value of Christmas retail sales


09-11-2010

The value of retail spending in the UK will increase by one per cent year on year this Christmas, according to business advisory firm Deloitte.

The increase will take the value of retail sales in the critical month of December just beyond £37 billion, as consumers continue to show resilience in the face of testing economic conditions. However, Deloitte forecasts that the retail industry is unlikely to see any growth at all in 2011, with the possibility of falling sales values a real risk.

In a survey of more than 20,000 consumers across Europe, including 2,000 in the UK, Deloitte found that most people intend to continue spending this Christmas. Seventy-one per cent of UK consumers plan to spend the same or more than last year on gifts, while 76 per cent plan to do likewise on food and drink. The entertainment and leisure industry can also look forward to a busy festive season, with 79 per cent intending to match or increase last year’s spend on going out.

In East Anglia, 75 per cent of consumers said they were planning to spend the same or more on food and drink this year, while 73 per cent plan to splash out an equal amount or more on presents. Seventy-eight per cent plan to have a good time this Christmas by spending their money on socialising.

Richard Knights, office senior partner at Deloitte in Cambridge, said: “A one per cent increase in retail sales this Christmas caps a remarkable year for UK retail. The industry bucked most forecasts for 2010 and whilst retail sales for the whole year will be broadly flat, in the context of the wider economic environment this is a tremendous outcome. A number of factors combined to support disposable income in 2010, particularly the record low interest rates which have lowered the costs of servicing mortgage debt.

“Each year, consumers tell us they will do whatever they can to enjoy Christmas and this year will be no different.

“However, the question is what will happen when the party is over? Has retail shaken off the downturn, or merely postponed the pain? From 4 January, VAT will increase to 20 per cent and, in April, National Insurance will increase for some.

 

“In addition, we’ll begin to see the Spending Review have an impact as higher unemployment in the public sector combines with cuts in child benefit, higher train fares and other measures to create a situation where reduced disposable income is inevitable.”

According to the results of Deloitte’s annual Christmas Retail Survey, consumers in East Anglia are pessimistic on the outlook for the UK economy, with more than a third (39 per cent) expecting it to deteriorate in 2011, compared to just 16 per cent who think it will improve. Thirty-one per cent of those surveyed believe the economy will stay the same next year.

As a result, 46 per cent of consumers in East Anglia believe the financial position of their household will stay the same. However, 40 per cent also think their household finances will get worse next year, compared to just nine per cent who think they will improve.

When asked where they would be prepared to make cutbacks, consumers identified clothing and household good as the most likely areas, with 87 per cent and 85 per cent, respectively, willing to spend less on these items if necessary. Eating out (81 per cent), entertainment, such as the cinema or theatre (71 per cent), and holidays (66 per cent) were all also high on the list. Perhaps unsurprisingly, food was most likely to be protected, but even here 47 per cent of consumers were prepared to make cutbacks.

Mr Knights said: “Against a backdrop of reduced disposable income and falling consumer confidence, we believe that another year of flat sales growth in UK retail would again represent an achievement. However, it is a distinct possibility that we will actually see a fall in the total value of retail sales.

“If sales fall, retailers will need to look at how they mitigate the impact on the bottom line, but this is itself a challenge. Retailers are facing increased costs, particularly in the non-food sector. Retailers and consumers have enjoyed an era of falling prices over the past 15 years but this period is rapidly being consigned to history. Since we import much of our product from economies which are growing rapidly, we are essentially importing inflation and will continue to do so going forward. It is unclear how much of these increases retailers will be able to pass on to consumers.” 

 

The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.

Deloitte LLP