Deloitte: Christmas retails sales predicted to grow by 1 per cent

The value of retail spending in the UK will increase by one per cent year on year this Christmas, according to business advisory firm Deloitte. 

The increase will take the value of retail sales in the critical month of December just beyond £37 billion, as consumers continue to show resilience in the face of testing economic conditions.  However, Deloitte forecasts that the retail industry is unlikely to see any growth at all in 2011, with the possibility of falling sales values a real risk.

In a survey of more than 20,000 consumers across Europe, including 2,000 in the UK, Deloitte found that most people intend to continue spending this Christmas.  Seventy-one per cent of UK consumers plan to spend the same or more than last year on gifts, while 76 per cent plan to do likewise on food and drink.  The entertainment and leisure industry can also look forward to a busy festive season, with 79 per cent intending to match or increase last year’s spend on going out.

In the West Midlands, the same number of consumers (78 per cent) said they were planning to spend the same or more on gifts and food and drink as last year, while 83 per cent plan to enjoy themselves by spending on socialising.

Jane Whitlock, consumer business partner at Deloitte in Birmingham, said:  “A one per cent increase in retail sales this Christmas caps a remarkable year for UK retail.  The industry bucked most forecasts for 2010 and whilst retail sales for the whole year will be broadly flat, in the context of the wider economic environment this is a tremendous outcome.  A number of factors combined to support disposable income in 2010, particularly the record low interest rates which have lowered the costs of servicing mortgage debt.

“Each year, consumers tell us they will do whatever they can to enjoy Christmas and this year will be no different.

“However, the question is what will happen when the party is over?  Has retail shaken off the downturn, or merely postponed the pain?  From 4 January, VAT will increase to 20 per cent and, in April, National Insurance will increase for some. 

“In addition, we’ll begin to see the Spending Review have an impact as higher unemployment in the public sector combines with cuts in child benefit, higher train fares and other measures to create a situation where reduced disposable income is inevitable.”

According to the results of Deloitte’s annual Christmas Retail Survey, consumers in the West Midlands are pessimistic on the outlook for the UK economy, with a third expecting it to deteriorate in 2011, compared to just 18 per cent who think it will improve. Forty-one per cent of those surveyed believe the economy will stay the same next year.

But despite the relatively gloomy outlook for the UK economy, the majority (57 per   cent) of consumers in the region believe it will not have a negative impact on the financial position of their household. In fact, 17 per cent think their household finances will improve, while 18 per cent expect them to get worse.

When asked where they would be prepared to make cutbacks, consumers identified household goods and clothing as the most likely areas, with 76 per cent willing to spend less on these items if necessary.  Eating out (69 per cent), entertainment, such as the cinema or theatre (66 per cent) and holidays (62 per cent) were all also high on the list.  Perhaps unsurprisingly, food was most likely to be protected but even here, 39 per cent of consumers were prepared to make cutbacks.

Ms Whitlock said: “Against a backdrop of reduced disposable income and falling consumer confidence, we believe that another year of flat sales growth in UK retail would again represent an achievement.  However, it is a distinct possibility that we will actually see a fall in the total value of retail sales.

“If sales fall, retailers will need to look at how they mitigate the impact on the bottom line, but this is itself a challenge.  Retailers are facing increased costs, particularly in the non-food sector.  Retailers and consumers have enjoyed an era of falling prices over the past 15 years but this period is rapidly being consigned to history.  Since we import much of our product from economies which are growing rapidly, we are essentially importing inflation and will continue to do so going forward.  It is unclear how much of these increases retailers will be able to pass on to consumers.”

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