Show faith in the worth of your offer and it’ll rub off on consumers, says Simon Burke

Show faith in the worth of your offer and it’ll rub off on consumers, says Simon Burke

“Recessions are as much about psychology as economics. Discuss.”

The r-word is back on everyone’s lips. Anybody working in a consumer business, not just retail, has seen the headwinds get stronger as the year progressed and there is very little optimism around for Christmas trading.

The media are full of explanations, and there is no shortage of potential culprits: government cuts, energy and fuel inflation, the euro crisis, falling share prices, etc.

In fact the case for blaming any of these factors for poor trade is pretty thin. But there is another factor, one I think is seriously underestimated in gauging and forecasting consumer confidence, but which is affected by all of the things I have just listed. I’m talking about ­psychology, especially of the consumer.

Economic events come and go, and many of them affect only a small proportion of the population. Unemployment is a good example.

It really only affects those who lose their job, or who fear that they will.

It’s hard to see the Eurozone difficulties having a direct near-term effect on many people in Britain. But constant news about job losses and euro crises affects everyone’s morale.

So it is possible that many consumers will feel worse off and cut their spending, even if nothing major has actually happened to them. I believe that this, more than anything else, is what is affecting our businesses right now.

How we as retailers behave, and are perceived by consumers, can also have quite an effect on their frame of mind. Stories of gloom in the retail sector only reinforce customers’ perceptions and discourage them further.

A very good example of this was about a decade ago when Marks & Spencer was struggling with trade and profitability. There were regular leaks of weekly sales performance – always bad – and constant chatter from the City on how bad things were.

With each new bulletin the sales got worse as customers lost confidence, no doubt thinking that if other people were going elsewhere, maybe they should too.

There is a real danger of shooting ourselves in the foot this Christmas, not just with gloomy stories but, crucially, by our actions. Over recent years, shoppers have got to know the key signs of distress in the retail sector, and there is no time when they look out for them as keenly as when Christmas approaches.

A well-planned Christmas proposition, focused on good value from the outset, is the best chance to maximise profit over the season. A high–low strategy, overpricing at the outset only to have to discount severely in a pre-Christmas Sale as stock fails to move, sends all the wrong signals to a fragile consumer, prompting them to wait and see if even better bargains become available.

If you get the value mix right, it should be possible to hold the line through December and show confidence in the worth of your goods and quality of your ranging. That, in turn, will help confidence more widely and speed up a recovery.