Shoppers in the UK are gearing up for holiday season spending despite facing a 9.3 percent increase in retail prices. While this rise is expected to drive up spending by 3.4 percent for the holiday selling period, it still falls short of last year’s increase and marks a second quarter of slowing growth in 2023. Consumers will need to be savvier as they navigate higher prices, said GlobalData, a data analytics and consulting company, headquartered in London.
The 3.4 percent increase will take retail spending to £109.7 billion in Q4 2023. While a significant rise, GlobalData said it is barely half the 6.2 percent achieved last year when consumers were able to celebrate properly for the first time in two years following the relaxation of COVID-19 restrictions. It also marks the second quarter of slowing growth in 2023, with the increase down from a peak of 5.2 percent in Q2.
“This year’s growth in retail sales is driven by inflation, which GlobalData expects to reach 9.3 percent for the year as a whole,” explained Nick Gladding, lead retail analyst, GlobalData. “Sharply higher prices mean shoppers will spend less in real terms than last year, choosing either to trade down or trim the number of presents they buy. Last year’s sales growth was supported by shoppers spending savings built up during the lockdown. But with those savings now depleted by cost-of-living increases and mortgage rate hikes, consumers are likely to shop more cautiously and more savvily.”
The continuing pressures on shoppers are evident from GlobalData’s latest retail spending index in September, which is calculated by subtracting the number of households that said they would reduce their spending from those that will increase it. At -56.4, the Index remains negative despite being slightly less so than a year ago, suggesting that retailers will need to inspire shoppers and emphasize value to encourage them to spend.
GlobalData expects food and grocery to grow faster than other categories this year, with shoppers spending £2.8 billion (or 5.9 percent) more through the quarter than last year, reflecting the impact of price increases over the last 12 months outweighing any recent month-on-month declines.
“This year GlobalData expects a record number of shoppers to shop at discounters as their keen pricing and strong seasonal offers attract high levels of footfall (foot traffic),” Gladding added. “Discounter expansion is forcing the competitor set to raise their game and emphasize quality and breadth of range. M&S has already taken steps in this direction with its new pre-Christmas ‘it’s never been just food’ campaign while Tesco will make even more extensive use of Clubcard Prices this Christmas to offer enticing promotions to its loyalty scheme members which should boost basket sizes.”
Of the non-food sectors, clothing and footwear are expected to grow the fastest despite a challenging comparative from last year when many consumers splurged on clothing for the party season to make up for celebrations canceled during the pandemic. The sector is proving resilient to the cost of living cutbacks with younger shoppers, in particular, enjoying being able to dress up and experiment again. A second trend is a continuing focus on building capsule wardrobes, small collections of clothes that can be put together in different ways, which often include premium pieces suited to gifting.
The only other major sector to experience increased sales year-on-year will be health and beauty which is set to benefit from retailers stepping up their gifting and pampering offers. The inexpensive nature of many beauty items is likely to make them popular choices for shoppers on tight budgets.
Gladding concluded, “Sharply higher prices mean shoppers will spend less in real terms than last year, choosing either to trade down or trim the number of presents they buy. The dwindling savings, exacerbated by cost-of-living increases and mortgage rate hikes, are likely to shape consumers’ behavior. As a result, retailers will need to inspire shoppers and emphasize the value they provide to encourage spending.”