Will consumer concerns lead to a tale of two Christmases?

Is it the best of times? Is it the worst of times? For most retailers the answer right now is probably neither. Christmas has always been a time for optimism for retailers. Consumer spending rises dramatically and even the most ardent anti-shoppers can be seen out and about searching desperately for the perfect last-minute gift. This year, more than any other in recent memory, has added significance and the news for retailers is looking surprisingly positive.

Some festive cheer?

Our UK Christmas Retail Forecast, which is based on analysis of UK retail sales and consumer confidence data taken from 1 October until 31 December, predicts bumper retail sales of around £120 billion over the 2021 festive shopping period. Christmas retail sales in 2021 could increase by up to 4.5% when compared to Christmas sales from 2020 and up by as much as 9.0% when compared to 2019 sales for the same period.

Consumers, many looking to make up for the 2020 Christmas that never was, seem keen to make this one count. And it seems many retailers are keen to ensure this happens too.

The impact of the Omicron variant on shopping habits remains to be seen but it appears Black Friday trading was mixed. With consumers much more attuned to online shopping and worried about supply chain disruption, the main impact may be that Christmas spending is happening earlier than we’ve seen traditionally.

However, this year the boom may be just for Christmas with our Consumer Priorities research suggesting some more significant shifts in behaviour. Add to that the ongoing supply chain challenges and economic headwinds there may be some self-imposed consumer austerity coming in 2022.

2022 likely to be challenging

Throughout the pandemic we have been tracking changes in consumer behaviour. Some changes have been short-lived, such as spikes in online grocery shopping, while others appear permanent. In the UK 40% of consumers are now spending less in their day-to-day lives than they were pre-pandemic. Those consumers that have cut back on day-to-day spending trend towards being older, with over half (52%) of those aged 55 and over having decreased their spending during the pandemic, in comparison to the 24% of those aged 18-34 who report to now be spending less.

These changes are largely driven by consumers purchasing fewer non-essential products (53%), although almost one third (30%) also report that they have also learnt to consume less and be more sustainable during the pandemic. Crucially, over half (56%) of all UK consumers claim that any changes made to their spending behaviour are permanent.

Seasoned retailers will understand consumers have a long track record of saying one thing when surveyed and then doing something altogether different but there are signs that consumers sense trouble ahead. The issues with the global supply chain are one such example; historically, supply chain was a topic that rarely crossed the boardroom table, now it’s a conversation around the dinner table. Consumers know something is up. We’ve seen the impact of scarcity on people’s behaviour fairly recently but there seems to be some panic-buying fatigue setting in. Consumers in the UK are increasingly familiar with reports of shortages from crisps to wine, turkeys to toilet paper. What once prompted runs on pasta now causes barely a ripple in buying behaviour; something of a relief for retailers looking to navigate a perfect storm of supply chain disruption.

For retailers, agility remains key. While the pandemic has increased the sector’s fortitude, the era of disruption is not over and the supply chain issues are likely to take some time to settle. But the challenges from Q2 next year are much less likely to be supply chain related: demand spikes should normalise though some inflationary pressures won’t. It will be more about discretionary spend squeeze and changed consumer behaviours. This will be felt very differently across society and retailers need to adjust their proposition and how they serve their customer segments accordingly.

The likelihood of interest rate rises in early 2022 is also going to have an impact on consumer spending. Alongside increases in energy bills, cost of essentials, fuel increases and in April, a hike in National Insurance, there will be increased pressures on household budgets. Some households will be able to absorb this more comfortably than others, but the impact will be significant and further rattle consumer confidence and, in many cases, spending.

Longer term there are reasons for optimism and every crisis and challenge presents an opportunity. The self-centric consumer naturally favours omnichannel and with this comes richer data – critical in navigating future disruption. Resetting supply chains also brings opportunities. Greater resilience for one and better mitigation against future disruption, as well as a chance to appeal to ever-more sustainability and environmentally aware consumers. Increasingly we can anticipate customers wanting to know the provenance of products and the environmental impact of what they’re buying.

So, Christmas may be good, early 2022 tough but the retailers who continue to focus on agile, omnichannel strategies, highly effective fulfillment and agile supply chains will find that it is a far, far better thing that they do, than they have ever done.