‘Fashion stands out as signs bode well for retailers this Christmas’

It feels like there are a lot of storm clouds over retail right now. You’ll no doubt have seen retailers in distress and headlines around store closures, the cost-of-living crisis, record inflation and rising interest rates, among others.

PwC UK’s latest Consumer Sentiment Index looks remarkably positive in comparison. Consumers have told us they are more optimistic about their household finances than they have been for 18 months. Interestingly, somewhat unbelievably if you were to look at the headlines alone, confidence is pretty much in line with the long-term average, since we started the survey 15 years ago.

How do all these negative stories balance with our increased consumer confidence findings?

There’s no doubt that inflation has put a dampener on spending. Almost four in five consumers tell us it will affect their spending over the year. But since our previous survey, many people have benefited from pay rises, pension and benefit increases, and inflation has slowly begun to ease. If current trends continue, incomes will be rising faster than prices by the end of the year.

As for interest rates, fewer than 30% of UK households have a mortgage and many of those are on fixed rates. Among some demographic groups, like pensioners, Britain is a nation of savers.

That’s not to say some consumers are not disproportionately affected by inflation and interest rates, with one in 10 adults telling us they’re struggling with bills. There are people facing genuine hardship but for many, it’s perhaps not as terrible as might be expected. In fact, one in three consumers say they have money left at the end of the month to treat themselves.

“Although consumers say fashion is a lower priority for them, I am regularly asked why its performance is so strong relative to the operating environment”

The good news for retailers is our survey has consistently been a reliable predictor of consumer spending six months later – just in time for Christmas.

Add to that the trend around consumer prioritisation – on what, where and how they spend their money. At the moment, after essentials are accounted for, they say spending on health, home, holidays and hobbies is more important to them. They’re also prioritising special events and occasions, many with family and friends. For many retailers that bodes well for Christmas.

However, some categories may still see more muted spending. Bigger ticket purchases might be affected by both economic uncertainty and heavy investment during Covid-19. Electronics and tech may experience similar challenges, as well as a paucity of new product launches by big players.

That’s not to say there aren’t opportunities for a wide range of retailers. Even with the turbulence, there are already areas of good performance.

Fashion blueprint

Take fashion – although consumers say fashion is a lower priority for them, I am regularly asked why its performance is so strong relative to the operating environment.

There are a few reasons. There’s generally less capacity in the market now, allowing fashion retailers a bit more space to operate. Those that survived the shakeout are doing a solid job. They know their customers and are serving them in the right way for success, capitalising on consumer trends and rethinking channels.

The category remains a priority for the younger shopper. In fact, along with health and beauty, fashion is one of three categories where under-25s have positive net spending intention, compared with negative for the rest of the population. With outfit purchases often linked to special occasions and travel, there’s likely to be a resilient level of spending on fashion as long as these remain a priority for the consumer.

If I think about my own situation, we have a few occasions and big birthdays planned for later this year, which friends and family are prioritising and saving for in an effort to make them extra special. I’m already turning my attention to Christmas, as I imagine many other people are.

Good retailers and consumer-facing businesses will find the right balance in serving those with squeezed incomes while locating the groups with money left at the end of the month and encouraging them to spend responsibly.

Could fashion be the blueprint for other ambitious businesses as we head into this year’s golden quarter?