‘Consumer sentiment is low but some retailers can still be optimistic about golden quarter’

What a difference a few weeks makes. In July, our consumer sentiment tracker hinted at a positive finish to the year for the retail industry.

We had more favourable macro indicators, the highest consumer sentiment in three years, and softer second-half results last year to trade against.

Fast-forward a couple of months, sentiment has had a real reversal of fortunes. Our most recent research has shown the biggest drop in over two years, and confidence is at its lowest level this year.

“We’ve seen similar in the US, too. Despite nearly 3% GDP growth this year, the lowest unemployment for 50 years, and a strengthening stock market, the average person on the street remains convinced of an economic cooldown”

This is all despite economic indicators remaining strong, inflation stable, real wages increasing, and more interest cuts likely. Lovingly known as a ‘vibecession’, it happens when there’s a disconnect between the country’s economy and the general public’s negative perception of it.

We’ve seen similar in the US, too. Despite nearly 3% GDP growth this year, the lowest unemployment for 50 years, and a strengthening stock market, the average person on the street remains convinced of an economic cooldown.

What could have triggered this?

Here in the UK, the most surprising aspect of the phenomenon was how quickly it happened. Just after the election, everything was on a high. Regardless of age or demographic, everyone was relatively optimistic.

Whether the starting point was the riots across the UK in early August, the unseasonably awful summer weather, or a combination of several factors, the typical post-election honeymoon vanished quickly, replaced by trepidation, particularly about the upcoming budget.

It’s a disconnect that’s quite surprising, considering people tell us household finances are much better than this time last year. Yet sentiment is on the wane.

The public vibes for the next few months may be shaped by the imminent autumn Budget. But we might need to wait a little longer to see the true impact. While we did see better-than-expected retail sales in September, that was helped by weak trading comparatives from 2023 and 2022 and while the month started well, sales came off in the latter weeks.

What could this all mean for Christmas?

Regardless of what appears in the Budget in the coming weeks, and whatever the weather holds for us, there’s still reason for some to be optimistic going into the golden quarter.

It might not be great for everybody in retail, but food and grocery will continue to perform well, as people prioritise getting together over the festive season. Selective treating and practical gifting will likely remain popular too, which will see beauty perform well for the second year running. However, more expensive or non-essential items such as big-ticket may take longer to recover than we first expected.

The festive spending has already begun. One in four consumers admit they’d started Christmas shopping before the end of September, and many more plan to start earlier this year compared to last. And with the increased popularity of online discount days, consumers are being lured to get the best deals ahead of the Christmas rush.

So, people are coming around to my way of Christmas shopping. I’ve long been an organised early shopper, getting all my Christmas presents sorted and wrapped well ahead of time. In fact, I’ve already bought the one present I can’t resist every year − my dog’s advent calendar. For an increasing number of households, early shopping helps them keep Christmas special through better budgeting and the opportunity to spread costs across multiple paydays.

For retailers this year, they must make consumers feel like their purchase is ‘essential’. Those who can do this or make products feel like an affordable treat are likely to see the most success.

But before we even think about finishing our festive shopping, it will be fascinating to see whether the government has any early Christmas presents for us first.