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A lack of Christmas cheer

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Nervous shoppers expect to spend less this year on presents and food  
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Retailers face discount dilemma to drum up business

How much are people planning to spend on Christmas presents this year?

Consumers worry about the economic situation and are planning to rein in the amount of presents and food they buy this year. Spending expectations are much lower than we have seen before, with the average amount each person is prepared to commit dropping to £241.

Around 45% said that the general economic conditions had affected their spending plans, so it is clear that consumer confidence is still very fragile. This time last year, when the economy was firmly in a slump, only 38% said they would let the economic outlook influence their Christmas shopping.

How do spending plans compare to last year?

This year’s figure is significantly down on Christmas 2009, when the average amount people were expecting to spend was £256.

If that pattern played out uniformly across each one of the 35 million or so people of working age in Britain, the result would be a drop in total high street spending of more than £500 million.

The biggest reduction in spending plans we see this time is among the over-25s, who are expecting to spend £287 per person, almost £35 less than 12 months ago.

On the other hand, the spending plans of 18- to 24-year-olds showed a marked increase, with an average predicted spend of £189 this year compared to £168 last Christmas.

But surely people always bust their budget?

That’s certainly true. Last year 27% of people admitted they overspent and I would expect to see people spending more again when they start shopping in earnest.

Last year the actual average spend per person was higher than the prediction, at £263. That does not sound much of a difference but repeated across the country the cumulative effect made quite a difference to the bottom line of several big retailers.

The Christmas pattern is reinforcing what we at Intersperience have been witnessing in our quarterly surveys, where savers outnumber spenders and consumer confidence is fragile and remains at a stubbornly low level.

What will retailers do to respond?

They will have to do what they always do – offer deep discounts. The one thing we can say for sure is that this Christmas is going to be a time of terrific bargains. Retailers must hope that the younger group’s apparent confidence and willingness to spend more makes up for the reluctance on the part of over-25s. It is a big ask.

What does this mean for the wider economy?

Retailers are going to have to make such deep discounts to attract shoppers that it is bound to have an effect on profits.

From a retailer’s perspective it is really difficult to see how the younger generation, who have less money generally, can be expected to make up the predicted shortfall. If the over-25s stick to their spending guns.

Based on these spending expectations, consumer confidence is not bouncing back. The Christmas period this year will be a defining moment and will show us whether a wider economic recovery is possible in the first half of 2011.

What will people spend on this Christmas?

It looks as though the most popular gifts will once again be books, CDs and DVDs, followed closely by cosmetics and perfume. Electrical goods, clothes and lingerie are likely to be the other top gifts.

Will shopping online overtake the high street?

This is the first year when those who buy both in shops and online are predicting that they will spend more online. These people predict that 54% of their spending will be online.

The big impetus is coming from the younger generation, with the under-25 age group expecting to spend £123 online this year, almost 30% higher than a year ago. For them price is the main attraction for shopping online.

Will online retailers be able to meet demand?

I hope so, because they didn’t do too well last year. There were big problems with stocking levels and delivering goods before Christmas Day which drove people back to high street stores. The problems meant that actual online spending was 20% lower than expected.

This year online demand will be significantly higher, so web-based retailers must have robust logistics and customer services systems to both manage and meet expectations.

Are there any other online trends emerging?

M-commerce – sales via mobile devices – are likely to be a bigger factor this Christmas. One in ten under-25s expect to buy presents using their mobile phones double the level of 2009. However, I would add a word of caution based on last year’s experience. Despite what people said they were going to do, only 1% actually bought presents on their mobiles.

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