Christmas 2010 - the best Christmas for retailers since 2007

• Sales to increase 1.9% to £85.2 billion (about R935 billion)
  
• Consumers will spend an extra £1.6 billion this year (about R17.6 billion)
  
• Online takes largest share of growth - £1.2 billion (about R13.2 billion)
  
• Online sales up 17.6% to £8.1 billion (about R89 billion)
  
• Clothing, food & grocery and health & beauty are the winners

Consumers are set to spend an extra £1.6 billion this year compared with Christmas 2009, with clothing, food & grocery and health & beauty producing the largest increases.

This is the highest increase in sales since Q4 2007. However it is the online channel that is set to benefit the most as more retailers are online and consumers enjoy the benefits of multichannel flexibility, choice and convenience. It will account for over three quarters of the extra spending with growth of £1.2 billion (about R13.2 billion) on last year.

Online the saviour of the retail sector

The convenience of being able to do all your food and present buying from the comfort of your own home has proved a winner at Christmas and this year will not be any different - online will account for 9.5% of all sales. In non-food it will be the main contributor to growth, growing at 17.8% compared with 0.8% for total non-food.

Maureen Hinton, lead retail analyst at Verdict said: "Though online is such a major factor in sustaining growth, the fact so many more retailers are now online means that even this channel is becoming more crowded and competitive. Those retailers we trust, such as John Lewis, M&S and Next, that provide a range of multi channel options for buying, delivery and exchange are the winners at Christmas, as well as specialists with unique ranges such as The White Company".

"However this switch to online does mean those retailers without transactional websites are missing out at a crucial period for the sector."

Despite the good news there are some caveats;

• This figure includes VAT which has increased from 15% to 17.5% since last year
  
• Inflation is driving growth - particularly in clothing, food, and health & beauty
  
• Some sectors will actually shrink

Supermarkets will be fighting each other hard for business

Though consumers have been trading back up to premium lines and brands as we have come out of the recession, they are still being cautious with their overall spending and careful not to be wasteful, so it is becoming more difficult for food retailers to drive high volumes. Furthermore supermarkets are among the few retailers to have increased their store networks during the recession, so competition is increasing.

Malcolm Pinkerton, senior food and grocery retail analyst at Verdict said: "We expect to see more promotional activity in the final run up to Christmas but supermarkets will be among the winners because food is core to the holiday celebrations, and they can cross sell non-food to us - and again, especially those with multi channel facilities"

Clothing & footwear growth driven by high inflation

As Verdict predicted at the beginning of the year clothing prices have risen sharply with the autumn ranges. Fortunately fashion, with its more structured styles and increased decoration, can justify higher prices to shoppers - but we are buying fewer products, so the opportunities to sell to us are limited.

Sarah Peters, senior clothing analyst at Verdict: "Those retailers with distinctive propositions that convey luxury at more affordable prices such as Reiss, Kurt Geiger, Whistles, Hobbs and department stores that stock these brands, such as John Lewis and Selfridges will also prosper. We expect M&S to do well too as current fashions suit its 45+ core customers, it is up against relatively weak comparatives, and it can offer premium styles at good value prices."

Electricals boosted by new products, but hit by price deflation

Christmas is a crucial period for electricals delivering high volume sales. Yet despite being boosted by iPad sales and new video game accessories which are popular presents, basic high ticket items in white and grey goods will continue to decline.

Smartphones, tablets and Kindles will be popular but at the expense of the iPods, portable media players, cameras and so on which have been the staple gifts of festive periods past.

Televisions, with maturity now beginning to set in, will struggle to match the tough comparatives from 2009. Price as ever will be key, but heavy competition will result in strong price deflation (-7.1%)

Matt Piner, senior electricals analyst at Verdict said: "Winners will be those with strong multichannel offers and those able to create a sense of excitement around products, such as Amazon, John Lewis and Apple. Losers will be those unable to replicate this, with Asda, Argos and Tesco set to struggle to hold or grow market share."

Health & beauty resilient - because we believe we, and our friends and family, are worth it

Fragrance and beauty products are another staple of Christmas and Verdict expects consumers to continue to buy into new and exciting products that have a relatively low selling price.

In preparation for the VAT increase in 2011 health & beauty retailers have already begun to push prices up. However, Verdict does not expect this to have as much impact on volumes compared with other sectors given the general reluctance of consumers to cut back on health & beauty products.

Verdict expects Boots to do well over the Christmas period given the strength of its gifting product offer, though Superdrug's new TV campaign should heighten competition. Grocers will see strong sales as they focus on price and value and continue to expand their health & beauty offer and department stores will benefit from demand for premium brands.

Home related sectors will have varied fortunes

DIY and furniture & floorcoverings will continue to be hit by lack of movement in the housing market. Seasonal products and gardening items will be the main areas to push sales for DIY & gardening retailers, however homewares provides an opportunity for gifting and entertainment as long as the ranges on offer grab the attention of the shopper. This is why the like of White Company and John Lewis, who have highly desirable products that offer present solutions for a wide range of recipients, will prove popular.