Credit-crunched consumers are re-focusing their finances. The festive season is the busiest time of the year for the nation’s retailers, with consumers splashing out on Christmas gifts, food and drink. However, the onset of the global financial crisis and recession has brought about rising unemployment and tighter credit conditions from banks over recent months.
This means that the consumer outlook has changed, with many people becoming more conservative about their finances. In turn, this could lead shoppers to reconsider the amount they are willing to spend at Christmas.
Impact of the recession
Several recent reports provide supporting evidence for this point of view. Official government data from the end of last month showed that the “savings ratio”, the amount of total income saved rather than spent by consumers, rose to its highest level for five years over the second quarter of 2009. Households were found to be saving 5.6% of income, up from 3.9% in the first three months of the year. Meanwhile, the latest Nationwide Savings Index, another key indicator of how positive people are feeling about savings, reached its highest level since 2008.
Another response to the recession has been that consumers are more willing than before to pay down their outstanding debts. Latest data from the British Bankers’ Association shows that overall credit card spending for August 2009 stood at £5.6bn, while repayments on these cards reached £5.8bn.
These figures could mean that people are now becoming more willing to save, rather than borrow, in order to fund “big ticket” purchases such as expensive Christmas gifts. However, an increasing willingness to save could also signify a decreasing willingness to spend, which would in turn be bad news for retailers hoping for a festive boost.
Insolvency specialist Begbies Traynor has caught the prevailing mood of gloom among retailers in new research showing that the number of firms facing “critical problems” rose by 37% from August to September 2009. Nick Hood, senior London partner at the firm, also suggested that this upward trend was likely to continue for some months to come. “With unemployment set to continue rising for many months and consumer confidence remaining extremely fragile, many struggling retailers are threatened with a Christmas that may be even worse than last year,” he added.
The rise of the ‘savvy shopper’
Despite all this doom and gloom, it is worth noting that what is bad news for the high street is not necessarily bad news for the consumer. Savvy shoppers looking to rebalance their finances in the wake of the recession can find many ways of reducing their overall Christmas expenditure.
One of the best ways to cut costs is by using the internet, rather than high street retailers. Online shopping has consistently risen in popularity over recent months. For example, recent figures from IMRG and Capgemini showed a 16% annual rise in online spending during August 2009 and Tina Spooner at IMRG added that internet stores were also focusing on Christmas as a period of further growth. “The retailers that continue to expand and improve their online presence will no doubt reap the benefits during the festive trading period,” she said.
Elsewhere, analysis from research group GfK NOP suggested that the UK has now turned into a “nation of deal-seekers” in the wake of the recession. Helen Roberts, retail research director at GfK NOP, said: “What we’ve seen through this year is a real growth in what we call the ‘savvy shopper’ – the person who knows what they want to buy but then goes and finds if there is a deal on it.”
The research also suggested that other cost-cutting retail trends were on the increase, with consumers mixing branded goods with own label products and even preferring to shop on their own rather than going out with family and friends and being tempted to spend more.
Christmas 2009
Consumers could also benefit from a general improvement in financial conditions. Groups including the National Institute of Economic and Social Research have suggested that the recession will be over by the end of 2009, while recent official labour market data found that unemployment is rising less sharply than before.
Nationwide also said earlier this month that overall consumer confidence is on the increase in the UK, with 39% believing that conditions will improve over the next six months. This is the highest total recorded since the Nationwide survey began in 2004 and could signal an increased willingness to spend.
However, no matter how confident consumers feel about the country’s economic future it’s clear the recession has redefined priorities when it comes to personal spending. Securing a ‘good deal’ is now a vital part of the purchasing process. Retailers take note: this new conservative attitude means that, for many consumers, a happy new year in 2010 depends on having a good-value Christmas in 2009.
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