Shoppers are spending more around payday and retailers need to think carefully about their promotional timetables.
Why are we talking about this now?
Department store group Debenhams reported in its interim management statement last week an increasing trend for shoppers to spend more at the end of the month, coinciding with when people are paid.
Debenhams is not the first retailer to have observed the pattern. The big grocers, such as Morrisons, have been noticing it for a while and have run promotions at that time to ensure their share of spend at what has become a critical selling period. Morrisons, for instance, has run a Big Pay Day Price Crunch campaign to reflect consumers’ behaviour.
Why is it happening?
Neil Saunders, managing director of retail consultancy Conlumino, says the change in spending patterns is directly related to the downturn. “A lot of people are living in a hand-to-mouth way,” he says. “They get paid and feel flush, and as they go through the month they find their bank balance dwindles.”
With little spare cash to hand, inflation rising faster than wages and the need for debt repayments, consumer spending is constrained.
Has it happened before?
Yes, but perhaps not to such an extent. “The problem with this recession is that it has dragged on for a very long time,” says Saunders. The 1990s recession was more of a short, sharp shock – this time, consumer confidence has been shaky since 2008 and things haven’t started to look up yet.
“There’s been a long, slow erosion of living standards,” says Saunders. Higher levels of debt repayment are compounding the problem. And it’s likely to continue for the rest of this year at least.
Saunders says: “Inflation is still above salary increases. Until we get into a sustained period of recovery and wages start to pick up it’s going to continue.”
How should retailers react?
Affected retailers need to think carefully about how they are selling at different times of the month.
Saunders advises pushing treat products around pay day, and offers and bargains as the month goes on. If a retailer is going to launch a Sale, it’s best to do so as consumers’ cash runs out. It’s also worth considering the effect on the supply chain. While it’s not a huge challenge logistically, new product launches, for instance, can be geared towards pay day.
“It’s best to have a supply chain that’s flexible enough to push launches to the beginning of the month,” Saunders says.
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