What does the new year hold for retailers? Judging by recent media coverage, an awful lot of grief and gloom. Is this a realistic prospect, or are we in danger of talking ourselves into something even worse?
The evidence certainly looks depressing. Consumer spending has long been underpinned by the housing market, which is experiencing a downturn. Over the past year, the savings ratio – net of higher contributions to pension schemes by employers – has fallen below zero for the first time since the late 1980s. Apparently, some 4 million people are still paying off debt from last Christmas. The flow of spending from mortgage equity release is drying up.
It is hardly surprising, therefore, that surveys point to a sharp decline in consumer confidence. The Bank of England’s belated quarter point cut seems a puny response to this formidable array of negatives – nor, given the present rate of food inflation, will it necessarily be followed by further reductions.
During 2008, nearly 11 million sq ft of new retail space will come on stream in the form of about a dozen major shopping centre developments, as well as further growth in edge-of-town grocery retailing.
This new space – plus another 6 million sq ft in 2009 – will have an impact on less competitive high streets over and above any general decline in consumer spending.
Ready to sell up and depart for the Algarve? Well, not quite. It isn’t all gloom. Firstly, retailers will continue to force down shop prices through everyday competition. Non-food prices have been falling for several months and the supermarkets will ensure that the regular grocery shop doesn’t cost a penny more than it has to. All of which means excellent value for shoppers.
Secondly, a recent survey by Nielsen and the BRC found that, while almost a third of consumers said that the economy was their main worry in the coming six months, just over half felt that their personal finances would be “good” or “excellent” in 2008.
This may, of course, simply reflect their anticipation of more interest rate cuts in the next few months. It may also reflect the optimism of older consumers, who are not burdened with heavy mortgage costs and whose spending aspirations are relatively modest.
However, one thing is clear: this is likely to be the most price-conscious year we have seen for more than a decade. According to the BRC retail sales monitor, the first three weeks of November were grim – especially for clothing and footwear retailers. In the immediate run-up to Christmas, however, sales growth in most sectors staged a double-digit recovery, as some big multiples launched aggressive, store-wide promotions. More will follow over the next few months.
This is a familiar scenario, with the usual range of winners and losers. So maybe there won’t be much that’s really new in the new year after all.
Kevin Hawkins, outgoing director-general, BRC