Deloitte forecasts zero growth in total Christmas retail sales as austerity measures finally take hold
17 November 2011
There will be no growth in retail sales this Christmas, according to Deloitte, the business advisory firm. Whilst consumers tend to display remarkable resilience at this time of year, the gradual squeeze on disposable income means that a flat Christmas is the most positive outcome UK retailers can expect. The outlook for next year remains weak and Deloitte expects no sustainable growth in retail sales until 2013 at the earliest.
The one bright spot for UK retail continues to be the performance of online which Deloitte forecasts will increase by 15% in December compared with the same time last year. Online retail accounts for 11% of the total annual retail market, but becomes disproportionately more important at Christmas.
Ian Geddes, UK head of retail at Deloitte, said: “Online retailing was hit last Christmas when the massive nationwide snowfall forced some major players to stop taking orders because delivery became impossible. Assuming no repetition, continued growth in click and collect and increasing access through mobile phones and tablets will help boost sales. This year total online retails sales will exceed £30 billion for the first time.
“Deloitte’s research shows that the internet’s significance as a retail channel goes beyond online transactions, with more than 40% of all retail sales by value now digitally influenced with shoppers increasingly using the web for research, price comparison websites and social media recommendations."
Richard Hyman, strategic retail adviser to Deloitte, said: “Christmas 2011 promises to be the most important moment in retail trading we have seen for many years. Demand has been softening throughout the year as the impact of the Government’s debt reduction strategy has started to filter through to the pockets of consumers. Therefore, it is very difficult to see where sales growth will come from this Christmas.
“Indeed, in real terms the picture is worse than that for many in the industry and for some sectors in particular it is exceptionally tough. Cost growth is outstripping sales growth and outside food and childrenswear, an additional 2.5% of each sale now goes to HMRC in extra VAT. Secondly, whilst volumes are down in both food and non-food, non-food in particular has experienced weaker demand. Finally, there is the impact online has had on the performance of stores. If you take away online revenues, traditional bricks-and-mortar sales are declining at a rate of around 2% a year.”
Geddes concluded: “The key concern of retailers this Christmas will be to protect margins at all costs, with a view to weathering an even more demanding trading period early next year. The prospect of entering the New Year with excess stock is unthinkable so the majority will have erred on the side of caution in their purchasing strategy. Nevertheless, we are already seeing much higher levels of discounting on the high street and would expect this to increase further as retailers’ battle to win a share of the Christmas wallet.
“Looking further ahead, I do not see conditions improving greatly on the high street for the foreseeable future. Next year will be the first full year of the impact of spending cuts and it is unlikely we will start to see any real growth in sales until at least 2013. For this reason, whilst the quarterly rent bill at the end of December will find some retailers with insufficient cash flow, I expect the real crunch to come at the end of Q1 2012. Only those able to win market share will be immune and we should anticipate an increased number of casualties.”
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