Retailers have stocked up on festive goodies, but will anyone buy them? | Retail industry

Will it be a merry Christmas? Without a doubt, it will be one of the most uncertain for companies. Inflation, the war in ukraine and an erratic new cabinet only add to the nervousness around Covid. And who knows if England and Wales will bring joy or pain to football fans during the World Cup in Qatar.

Retailers were already feeling nervous before Liz Truss and Kwasi Kwarteng launched its mini-budget for growth – and sent the pound into a free fall and mortgage rates soared.

The industry may have bought its shares for peak trading season, so the fall in the pound’s value won’t affect prices or earnings until next year. The main short-term concern ahead of Christmas, when most consumer industries make the bulk of their profits, will be consumer confidence and purchasing power.

A pause in home sales, as uncertainty over interest rates freezes transactions and cuts buyers’ wings, is likely to mean a further slowdown for related businesses, from real estate agents and builders to furniture stores. and DIY retailers, who are already suffering after the lockdown boom in home improvement.

Those in rented homes may also fear rising costs as landlords increase their demands to cover more expensive loans. Talk of potential benefit cuts and the impact of cuts already in place means even more pressure for those on a tight budget. They will be watching every penny, driving more switch to discounters like Aldi and Lidl and putting more pressure on brick-and-mortar supermarkets to keep prices low, thus accelerating the decline of ailing chains Morrisons and Waitrose.

During the summer, consumers chose to prioritize nights out and dress for the occasion and cut spending on other non-essential items, such as subscriptions and household items. Spending on big-ticket items like furniture, which saw huge growth during lockdowns, has also dropped. Meanwhile, shoppers are stretching their weekly grocery budgets by skipping the little extras and bargaining with store-brands or discount chains.

Those first signs of behavioral change come as the money left over after paying for essentials plummeted 10% in August for the average family, and the drop deepened to 16.5% among the least wealthy, according to the Retail consultant. Economic Sciences.

Outstanding net credit card debt has risen on average 0.9% per month since the start of the year, well above the 0.1% growth in the decade before the pandemic. Budgets are likely to tighten further this fall as the heat turns up and dreaded energy bills hit the doormat. Consumers will be forced to make even more difficult decisions.

Clothing, household items, nights out, and travel should be on the list of budget cuts for many households. Supermarkets may start to benefit as eat-outs are swapped for “fake” ones like Marks & Spencer Family Dinner Dealwhich feeds four people for £15.

Non-essential retailers may have had a decent summer and a switch to lower rental deals during the pandemic, but their bookings have been hit by the closures, while the government still has to deal with high business fees. and out of tune. .

The Truss-Kwarteng plan was supposed to boost the purchasing power of households offering help with energy bills and cutting taxes. Their efforts were aimed at increasing cash on hand due to support from the energy price cap, with some retailers expressing hope that consumers would calm down.

As Simon Wolfson, head of Next, pointed out last week, households have more savings than before the pandemic and the unemployment rate is low and nearly matched by vacancies. Nevertheless, sky-high mortgage rates, the Collapse in the value of the pound and volatility in the stock market is likely to spread a general feeling of economic malaise and fear about the future, which could lead to caution about holiday spending.

Richard Lim, CEO of Retail Economics, sums it up: “The cost of living crisis and the impact on housing affordability will make life extremely difficult for groups of households as we head into 2023. it will be incredibly difficult and will likely push many in the industry to the breaking point.”