PwC’s Lisa Hooker unpicks the messages from retail’s golden quarter
We’ve seen mixed results coming out of the golden quarter trading period: volumes down, contradictory and often negative footfall and spending data versus more pounds in the till for some, and others viewed as big winners.
As ever, the real story lies somewhere in the middle.
There’s no hiding from the fact that Christmas was somewhat subdued. But with an ongoing cost-of-living crisis, better-than-expected November results and an earlier start to Black Friday Sales, it’s also little surprise.
Total sales over the critical run-up to Christmas fell 2.1% by volume, according to the Office for National Statistics, while pounds in the till increased by only 2.3% – far lower than the headline rate of inflation.
“Most consumers leaned into a more ‘safe’ and traditional Christmas with a focus on food and celebration. That meant smaller family gatherings, fewer presents and more sensible spending”
It’s the scale of the decline that surprised some. Retail sales volumes fell to their lowest level since May 2020, right in the middle of the first lockdown when non-essential shops were closed. This is in stark contrast to the better-reported sales announced by some large established retailers.
There is also a simple explanation: most consumers leaned into a more ‘safe’ and traditional Christmas with a focus on food and celebration.
For many, that meant smaller family gatherings, fewer presents as a result and more sensible spending than last year. It also brought more cautious spending in general, even though we did embrace some selective treating.
With fewer people around at Christmas, consumers tried to avoid temptation, particularly on items they may not have considered essential, such as home furnishings or stocking fillers among others.
People were more conscious about what they bought and took more time to consider whether they really needed items. That meant reining back on areas such as toys, sports equipment, watches and jewellery. Interestingly, fashion was one of the less affected categories.
Thinking about my own experience, a year earlier, we took the opportunity to have a big family Christmas back in Blackpool.
Like many others, we wanted to make a big deal of being able to get together in person to celebrate properly for the first time in ages, with the previous year’s celebrations cancelled due to the Covid-19 Omicron variant. We bought more presents than normal, and for more people.
“With consumers buying less, we saw them go to retailers they considered reliable and that promised quality – whether for food, gifts or the overall experience”
This time it was a much smaller affair and we even ended up going away. I was much more thoughtful with my spending, reflecting on whether that extra stocking filler or trinket for the home was necessary, while still prioritising food and celebrations with close friends and family.
With consumers buying less, we saw them go to retailers they considered reliable and that promised quality – whether for food, gifts or the overall experience.
Inevitably, that led more people to larger, trusted brands, making life harder for newer entrants and independents.
It was good news for some of our beloved and established retail brands, many of whom did a good job of keeping their customers close, running effective and far-reaching advertising campaigns, encouraging customers to prioritise (and spend on) quality, and with enough promotions and price-matching to discourage shoppers from venturing elsewhere.
It was more challenging for some discount retailers, either because they had a less established reputation for quality or because shoppers wanted to avoid the temptation of special aisles and other non-essential products.
In hospitality, there was also an appetite to celebrate and some established more premium chains outperformed. The appetite to celebrate drove strong performance for health and beauty.
Already a solid part of our consumer DNA, it received a further boost from the lipstick effect, a focus on self-expression from younger consumers and a desire for self-pampering.
With all that in mind, what might the year ahead hold?
“Our latest consumer sentiment survey shows that households are beginning to feel financially more comfortable, with some demographics having money at the end of the month available to spend”
Even with easing inflation, rising wages and the recent National Insurance cut, retailers have already talked about a slow start to 2024.
Despite this, our latest consumer sentiment survey shows that households are beginning to feel financially more comfortable, with some demographics having money at the end of the month available to spend.
While spending is yet to follow, these positive indicators hint at an upturn in fortunes as the year progresses.
Our latest CEO survey shows leaders chasing growth this year, rather than looking to take more cost out of their businesses.
There are promising signs ahead but, even so, retailers will have to think about how they remain relevant, where they continue to build brand recognition and, critically, how they convince consumers to spend that available income.