New data shows retailers could face a difficult Christmas

Our recent article on consumer confidence forecast a challenging winter for the retail sector and the wider economy as a whole. Following these predictions, this week has provided a clearer indication of how the sector’s usually golden quarter will play out.

Alongside the Office for National Statistics’ monthly update, the British Retail Consortium’s Retail Sales Monitor is a reliable bellwether for the wider economy. At first glance, its latest report point to a substantial uptick (which is typical for Black Friday), with sales in the last month accelerating to a point where they were up 4% year-on-year. However, the reality is that price inflation has driven up spend but ultimately masked lower sales volumes.

Notably, Barclaycard – which processes almost half of all transactions in the UK – reported that transaction volumes were up around 3%-5% over the Black Friday weekend in comparison to last year. While we might normally interpret this as the start of a bumper Christmas, in light of current conditions, the greater likelihood is that shoppers were frontloading their spending with a view to securing cut-price presents.

Looking more closely at the data, there are some notable trends appearing in terms of consumer spending. Cold weather essentials including hot water bottles and blankets continue to prove popular in light of increased heating costs, while the popularity of home furnishings on Black Friday – combined with a general increase in spend on takeaways – suggest a quieter period ahead for the leisure and hospitality sector.

There is of course the possibility that consumers opt to counteract the current economic conditions over the festive period with a targeted window of spending. However, the likelihood is a more subdued December than in recent years – even accounting for the emergence of the Omicron COVID-19 variant last Christmas.

For retailers, it will mean careful planning in terms of pricing – notably, discount retailers continue to see increased sales – as they look to balance their ability to attract customers and manage costs at the same time. Key dates are due in the next fortnight, with the Bank of England due to review interest rates again and the latest Consumer Price Index reading set to reveal whether inflation has peaked as some have forecasted.

As businesses gear up for a potentially challenging start to the New Year, we’ve prepared our guide to help management teams to take early action and defuse the inflation time bomb. The guide covers:

• How to approach reducing and managing costs strategically to strengthen your business and give you the best outcomes.
• Passing on cost whilst maintaining supplier relationships.
• How to take control of the costs of the goods and services in the face of rising prices by fixing and locking in costs.
• Your immediate action checklist, covering the essential actions you should take now to tackle inflation.