Merry Christmas?

Can this year's festive trading period create a positive ending to a challenging year for retailers?

Despite continued cost of living concerns, consumer sentiment is more positive relative to the same time last year, a potential indicator that Christmas spending in 2024 may surpass that of 2023.

VoucherCodes expects online and offline Christmas spending to increase by 4% year-on-year in the UK, with the largest contributors by retail category being sales in gifts and then food & beverage. Whilst overall holiday spending is set to increase, consumers remain price conscious, so retailers need to tailor their offerings to reflect both high-end and budget-friendly items. Although many claim to be planning on spending less, consumers’ actual Christmas spending typically exceeds their own predictions. However, when considering inflation, prices are likely to have risen compared to the previous year therefore the volumes of items sold need to be increasing in order for retailers to win.

Younger consumers
This group are more positive towards spending over this period and despite lower disposable spending power, 18-24 year olds will be an important demographic for retailers. This age group is closely followed by 25-34 year olds, so combined there can be a positive uptick in spend for technology, fashion, more indulgent high ticket items, as well as eating and entertainment.

Online sales
Online is forecast to remain prevalent (c.37% of Christmas spending), especially with the ease of bargain hunting online, although there is a slight increase in footfall as consumers are rushing to take advantage of in-store deals and the tradition of in-person Christmas shopping. Trends in post-pandemic online sales as a percentage of total retail sales consistently show a spike in sales during November, with 2023 increasing from 26.7% in October to 31.2% in November. Retailers are responding by enhancing in-store experiences, offering personalised services, immersive displays and festive events or markets to draw shoppers.

In 2023, the final week before Christmas saw a rise in footfall across all retail destinations by 11%. We are hoping that with an increased consumer confidence, footfall will be stronger in 2024. Many consumers (44%) plan on splitting their shopping evenly between online and in-person, highlighting the need for retailers to operate seamless omnichannel shopping experiences.

Supermarkets
The grocers had their busiest festive period in 2023 over the previous four years, with £13.7bn in sales for December alone. Another point to note is that almost 33% of sales in the four weeks leading up to Christmas were made up of items that were on offer, highlighting consumers’ desire for value. This year, 38% of consumers are expecting to spend more in grocery stores over the next 12 months, and given a more conservative view on spending on eating out, grocery stores and supermarkets are offering higher quality products to bridge that gap. With that, it is likely that we will see the groceries market have a fruitful festive period, with key players like Tesco and Sainsbury's and the more value-oriented stores, such as Aldi, being the winners.

Black Friday and Cyber Monday
Many consumers take advantage of the deals on items that they are tracking or to fill their baskets for Christmas presents. Incoming Black Friday and Cyber Monday (BFCM) sales will act as real time indicators of spending trends to look out for in December and forecast the overall festive trading period performance. 38% of UK consumers are planning to take advantage of BFCM discounts and sales are forecast to increase from £8.74bn to £9.14bn, an increase of 4.5%. Discounts are, of course, appealing to consumers and set to increase sales volumes but will drop margins for retailers, a negative for retailers looking to close out 2024 with maximum profits.

This year’s festive period from a retail perspective in the UK is characterised by cautious optimism with retailers gearing up for high demand in an uncertain economic climate. Rising cost pressures for retailers will be passing these on to consumers with increased prices, and with consumers tightening the grip on their wallets, this may be a tough Christmas for retailers.

While online platforms will continue to capture a large portion of sales, there is renewed interest in in -store experiences, with high streets like Oxford Street or department stores like Selfridges transforming into Christmas shopping-scapes. Offering competitive pricing, personalised experiences, and flexible shopping options will be crucial to capturing consumer attention while maintaining profitability in a challenging economic environment.

Alex Foy