The fear reflects the inevitable cumulative effect of interest rate rises, the end of the long-running housing market boom and the potential knock-on effects of the global credit crunch.
Moreover, with real personal disposable incomes showing no growth and consumer debt at record levels, it is all too easy to paint a very gloomy picture.
Reasons to be cheerful? Despite the “shock” media coverage, the big surprise has been the strength of retail sales – like-for-likes have risen about 2.5 per cent, as measured by the BRC. The slowdown hasn’t happened yet, the “summer” and October were all about weather.
Thus, with easing cost and space pressures – plus the dollar bonus for gross margins – any retailer doing badly has only themselves to blame. We have enjoyed a long-running consumer boom, fuelled primarily by ever-increasing consumer debt. The real threat is that recent events will produce a change in consumer attitudes and a conscious desire to de-leverage. A serious slowdown is inevitable.
Reasons to be cheerful, part two: the impact of interest rate moves is a long, slow burn and consumer psychology is: let’s have a good Christmas and worry about tomorrow in the new year. Unlike summer, Christmas always happens – the problem is timing.
As sales graphs begin to move up precipitately week by week, the tiniest delay in the phasing of spending can cause horrific-looking numbers and the traditional early-December media scare.
This has been aggravated by later and later phasing of spending, as consumers enjoy longer opening hours and Sunday trading, while retailers’ more efficient supply chains prevent stock shortages. The shops are no longer empty by Christmas Eve and shopping early doesn’t pay. The increasingly smart consumer waits for the Sales.
This is compounded by the vagaries of the calendar. This year, December 25 is a Tuesday, as it was in 2001, so a long final week is assured. There are four Saturdays – although that is the same as 2006. Flex your sales budget according to your 2001 sales pattern, allow for inevitable leaching of sales online and panic may be avoidable.
The bottom line is, after the traditional scares, it will be alright on the night – expect some further slowdown, but no disaster.
My prediction is that the six-week peak season will produce like-for-like growth of about 1.5 per cent – a healthy outcome, but one which, given the maturity and competitiveness of the retail market, leaves plenty of scope for winners and losers.
John Richards, retail consultant, Landsbanki
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