Economic storm will squeeze consumer spend in 2011, says Verdict

Verdict: consumers will be squeezed

Verdict: consumers will be squeezed

Consumer expenditure will be squeezed in 2011, as a result of rising unemployment, inflation and increased household costs. Retail sales volumes will suffer and shoppers will become increasingly price sensitive but premium products will do well.

Those are the key predictions from retail analyst, Verdict Research.

Presenting its 2011 retail outlook ahead of its Consumer Satisfaction Index Awards, Neil Saunders, consulting director at Verdict, said: “One of the things that’s going to shake people this year is an economic storm.”

Saunders said GDP growth was choppy. “I don’t necessarily think we will go into a double dip [recession] but the pace of recovery is never even, never smooth. It’s very important to understand that we are not out of the woods yet.”

Verdict said consumers will feel squeezed in two directions – from rising inputs such as increasing unemployment and lower earnings growth and outgoings including inflation and increases in fuel and taxation.

On the plus side, consumers may dip into savings to fund expenditure, council taxes have been frozen for at least a year and interest rates remain low and affordable for most households, Verdict said.

However, consumers’ real household disposable income will go down -1.5% in 2011, equivalent to £296.00 for the average household.

“The economy remains weak, earnings growth is sluggish and it will cost us more to live. The upshot is we will have less to spend,” said Saunders.

Verdict forecasts the impact on retail sales will be a slow down with total year-on-year volume growth of 1.8% in 2011 but only 0.1% stripping out the effects of inflation.

According to Saunders, it is that volume squeeze retailers will find most painful.

By sector, there will be winners and losers, however.

Verdict forecasts food (+3.4%), beauty (+3.9%) and clothing (+4.0%) will all outperform total retail growth of 2.4% across 2010-2015 but big ticket items like DIY (+0.4%), homewares (+0.6%), electricals (+0.6%) and furniture (+0.7%) will underperform.

Shoppers will change their ways, reports Verdict, and become more price sensitive in categories including food.

“People will become much more price sensitive – it will be a big issue for the retail market in 2011,” said Saunders.

But spend outside of the retail sector, such as on dining out and holidays, may benefit retailers with spend deflected to better quality food, for example.

Verdict claims premium food is poised to sell particularly well. Premium food sales are growing by 6.7%, ahead of both value (+5.1%) and mainstream ranges (+2.2%).

Saunders said shoppers wanted to treat themselves and retailers were extending their premium ranges.

“There’s a big opportunity in this space,” he said. “A lot of retailers are focusing on this premium end.”

But offering everyday value will still be key to retain shoppers, Verdict added.

Entry level ranges, such as Waitrose Essentials, were the right thing to do and stopped shoppers migrating from Waitrose for everyday goods, said Saunders.

But shoppers need excitement too and clarity in the offer.

Segmentation into sub-brands and providing good, better, best options is a prerequisite, according to Verdict.

“It helps the consumer understand different markets and mindsets,” explained Saunders.

Driving footfall with inviting stores and delivering innovation will keep shoppers coming back, he added.

“If you stay still and don’t move with the times, it will be very difficult to do well. The retailers that succeed understand this type of mantra and make things superior for the customer.’’