Christmas spending forecast to fall by £200m in 2011, says Decipher

Decipher: tough Christmas ahead

Decipher: tough Christmas ahead

Christmas 2011 is unlikely to bring much relief to hard-pressed retailers, according to retail research agency, Decipher. 

It is predicting total festive spend will be 0.6% or £200m lower this year than it was in 2010.

Electrical retailers, in particular, are tipped to have a torrid time with spending falling by 7.8%. And, Decipher is expecting further retail casualties in early 2012.

“Being cautious about Christmas is nothing new,” said Matt Piner, lead consultant at Decipher. “Retailers have been guarded ahead of the last three or four  Christmases. However, this time consumer fundamentals are firmly stacked against the sector.”

Decipher argues a combination of the long-term erosion of consumer spending power, higher retail inflation, low confidence and general uncertainty among shoppers will all combine to make this a far more muted Christmas for retailers. 

“It’s certainly true people do like to put their worries to one side at Christmas” said Piner. “However, this year we believe financial realities will take precedence over emotion. The truth is the average household has seen disposable income slip by 2.1% over the past year. That will simply feed into lower overall spending.”

Despite the gloomy prognosis, Decipher argues retailers should not see this as ‘Armageddon’. 

“Things are not dropping off a cliff; this is more of a gentle slip,” said Piner. “Indeed, given some of the economic news around at the moment I’d say retail is quite lucky to escape with just a 0.6% decline.”

In terms of consumer behaviour, Decipher’s forecast shows consumers will be cutting back on the number of things they buy, with retail volumes falling by 2.3%. 

“Many products are more expensive than a year ago, especially when you factor in the VAT rise implemented at the start of this year. That means money will stretch less far than it did in Christmas 2010. No one wants to have a Scrooge like Christmas but there is certainly room for consumers to curtail spending on fripperies and cut back on the amount of food they buy,” said Piner.

Non-food is set to see a sharper decline than food, despite retailers discounting to try and entice consumers into buying, said Decipher.

“The one upside of the constrained demand environment is there will be plenty of bargains to be had in non-food,” said Piner. “That’s good news for the consumer, but it will ultimately prove bad news for retail margins.”

On a sector basis, electrical retailers will be hit hard, said Decipher. 

“With a lack of exciting new electrical products, the maturity of games consoles and televisions and a reluctance to spend on larger items, electricals retailers are likely to fare particularly badly. In contrast, lower value ‘treats’ such as clothing and beauty items, are likely to hold up better,” said Piner.

But not all players will be affected by the slowdown, however. Decipher said companies such as John Lewis, Amazon and Apple are likely to outperform and grow market share over the crucial trading period. “There will be exceptions to the rule,” said Piner. “However, in itself this will put more pressure on the weaker players that will feed through into more casualties at the start of 2012.”