Actions for retailers:
- Look beyond London
- Consider what proportion of your customers’ income is disposable
- Adapt your marketing
Traditionally, London and the Southeast represent key geographies for retailers establishing or expanding their property portfolios, but where else should they be focusing their attention?
A host of less fashionable locations across the UK represent big opportunities for retailers to tap into goldmines of disposable income.
According to new figures from location data specialist CACI, Wokingham, Farnham, Twickenham, Sevenoaks and Camberley lead the way when it comes to the average discretionary income households have to spend on retail and leisure.
|Rank||Town or city||Average disposable income per household|
|6||Altrincham, Greater Manchester||£25,791|
|8||Solihull, West Midlands||£25,293|
|10||Sutton Coldfield, West Midlands||£25,117|
|11||St. Albans, Hertfordshire||£25,070|
|14||Bishop’s Stortford, Hertfordshire||£24,412|
|15||Haywards Heath, West Sussex||£24,352|
|17||Horsham, West Sussex||£23,608|
|20||Cheadle, Greater Manchester||£23,279|
|21||South Croydon, Surrey||£23,115|
|25||Barnet, North London||£22,745|
|28||Sale, Greater Manchester||£22,416|
|31||Leighton Buzzard, Bedfordshire||£22,146|
|32||Hornchurch, East London||£22,136|
|35||Ruislip, West London||£21,859|
|39||Surbiton, Kingston upon Thames||£21,731|
The top 40 towns and cities all boast average household disposable incomes well in excess of £21,000.
In London, the average spendable cash – after housing costs, tax, National Insurance, commuting costs and grocery bills have been stripped out – is much lower at just £16,500.
It means that retailers are potentially missing out on the footfall and spend on offer in secondary locations such as Altrincham, Solihull, Brentwood, St Albans, Warwick and Winchester.
As a region, the Southeast might offer the highest average disposable income of £20,400, but as the below map illustrates, there is money to be made well outside of the M25 and the surrounding regions.
The average disposable income in Scotland is £18,600, driven up by comparatively lower costs of living, while households in the Southwest and the East of England have £18,000 and £19,100 respectively to spend every year.
Only households in the Northeast have lower average disposable incomes than those in London, with a kitty of just £15,800 per year.
CACI associate partner Alex McCulloch says: “Retailers are increasingly recognising that, particularly across London and the Southeast, you have ever-increasing housing costs, transport costs and costs of living coming into play.
“Increasingly, just looking at someone’s affluence just isn’t enough to understand what their actual spend potential is.”
McCulloch observes: “That classic, middle-England suburbia, a family with 2.4 children living in a semi-detached house, is often not considered to be a core target audience that everyone wants to go after.
“But actually they have as strong a disposable income as a young 20-something Londoner that everyone is slightly obsessed with.
“Those sort of neighbourhoods are 8% of the population, whereas the city sophisticates are 3.2%.
“There is a huge proportion of the population sitting there who are shoppers, have valuable spend and are just as important to retail spend as the ones who feature in the marketing and all the glossy magazines.”
So what key insights should retailers take away from the CACI data in order to capture a bigger slice of that spend?
Look beyond London
London remains a core focus for retailers looking to make a splash in the UK and build brand awareness, but there is a wealth of opportunity outside the capital and the Southeast that retailers should consider more seriously when expanding their portfolios – in the same way that retailers such as Smiggle have in their pushes into the UK.
“Yes, shoppers in those locations may well be less affluent on a total income basis, but they either have lower outgoings or they are more loyal and dedicated shoppers as long as you give them what they are looking for”
Alex McCulloch, CACI
McCulloch explains: “We work with property companies across the whole of the UK who have assets in regional towns and relatively less affluent places but we have always maintained that, from a retail perspective, there is a lot of value that sits in areas of the population that are, more often than not, neglected because of perceptions.
“Yes, shoppers in those locations may well be less affluent on a total income basis, but they either have lower outgoings or they are more loyal and dedicated shoppers as long as you give them what they are looking for.”
McCulloch argues that although London and the Southeast provide “valuable hotspots” for retailers, they come with bigger challenges, such as higher rents and business rates, than other parts of the UK.
He believes that retailers will continue to crave “flagship” sites in the West End, Westfield’s malls and Bluewater because of the opportunity they offer to “showcase” the brand.
But he says retailers should take a “considered approach” to expansion based on the disposable income being spent in locations outside the M25.
Consider what proportion of customers’ income is disposable
Although certain parts of the country might boast high disposable incomes, it doesn’t necessarily mean consumers in those regions are willing to spend it.
Households in London, for instance, have £16,500 to spend every year, compared to £15,800 in the North East.
When a bigger proportion of your paycheck is disposable, that’s the case you’re going to feel a bit more comfortable, a bit more confident and are more inclined to go out and spend”
Alex McCulloch, CACI
But for London residents, that represents just 36% of their overall take-home pay, in contrast to 48% of a North East pay check.
McCulloch suggests that, on that basis, those in the North East will be more willing to spend, even though they have less disposable income in value terms.
“If you have a very high income but 70% of it is going on property, National Insurance and all the rest of it and you’re only left with 30%, you’re still going to feel psychologically a little bit squeezed,” he says.
“You are seeing a large part of your paycheck going out on fixed costs whereas, in some of the other regions, a bigger proportion of your paycheck is disposable.
“When that’s the case you’re going to feel a bit more comfortable, a bit more confident and are more inclined to go out and spend.”
Adapt your marketing
Due to the goldmines of disposable income available in neighbourhood and suburban locations, McCulloch suggests that some retailers should reconsider their approach to marketing to better appeal to a different kind of customer, rather than that “20-something Londoner”.
“We walked down Oxford Street and the oldest model we could find on the whole street was David Gandy, in M&S. He’s 37”
Alex McCulloch, CACI
He admits there is merit in targeting younger shoppers and using them in marketing because older, less affluent consumers will still “aspire to be them.”
But he argues that with numerous retailers using young, physically fit, attractive models, “there comes a time when you start alienating the audience.”
McCulloch says: “We walked down Oxford Street and the oldest model we could find on the whole street was David Gandy, in M&S. He’s 37.
“That’s quite depressing when you think about who the UK consumer is. The average age of an M&S shopper, for example, is 54.
“I’m not saying all marketing should reflect the core customer, that’s not how marketing works.
“But retailers should show more awareness of those demographics who have got a disposable income who maybe aren’t as well represented in their marketing focus.”
CACI examined the income and outgoings for 1.5 million postcodes across the UK.
To calculate disposable income, it stripped out the amount households spent on tax, national insurance, housing costs, travel to work and also assumed a minimum spend on basic food and clothing.
The amount that was left was classed as disposable income that “retailers are fighting over.”