Another cautious Christmas for retailers - PwC

11 Aug 2010

Mixed messages about the economy and concern about house prices and the impact of public spending cuts are forcing retailers to plan ahead for another cautious Christmas in the UK, according to retail experts at PricewaterhouseCoopers.

Despite reports of an increase in like-for-likes for some retailers, the majority are once again planning to stock moderately for Christmas to avoid the risk of being caught out by potential dips in consumer confidence. To take advantage of consumers seeking to spread their spending, many retailers are preparing to launch their Christmas ranges as early as possible.

Andy Lyon, retail partner at PwC, explains: "It's a case of once bitten twice shy. Many retailers were caught out in Christmas 2008 and left with goods that they were unable to sell. In 2009, they stocked more conservatively and this paid off with an improvement in profitability and they are expected to take a similar approach this year."

House price volatility

Recent reports about house price volatility will be particularly unsettling for consumers. PwC's UK Economic Outlook report stated that there was a 70% chance that house prices would not have recovered to 2007 levels by 2015 in real terms and warned of a 'high degree of uncertainty over future house price prospects'. The impact of imminent public sector cuts on jobs in the sector is also a concern for many households.

By contrast, some consumers are feeling better off, enjoying higher levels of disposable income than they were at the start of 2008, mainly due to the reduced cost of mortgages. For this group of consumers, the prospect of a 2.5% increase in VAT in January 2011 could boost sales of big ticket items such as furniture, TVs and cars prior to Christmas. However, this 'VAT-effect' is likely to be muted by continuing uncertainty about the health of the UK economy.

Mixed messages about economy

Andy Lyon, retail partner at PwC, says: "Consumers are getting a lot of mixed messages about the economy and they are concerned about spending cuts and possible house price movements. In such conditions, they are unlikely to increase their spending in the run up to Christmas and retailers will be forced to plan accordingly.

"We are heading for an austere Christmas. However, there will be pockets of strong retail performance as consumers continue to look for value for money by either shopping at value stores or by selecting from value ranges. The comparatively low value of the pound is also helping to boost tourism and luxury brand retailers with a London presence are also expected to do well. Due to better merchandise planning, discounting will certainly be less of a feature than recent years."