UK shoppers will spend more this Christmas than last despite the current financial crisis, but the extra spend will be driven by the higher cost of food, according to retail analysts Verdict Research.
Faced with a more expensive Christmas feast, consumers will be selective with food shopping and careful with their gift purchasing, buying fewer items of both. This means retailers will have to fight much harder for a share of their Christmas spend.
Verdict forecasts that UK consumers will spend £82.3bn with retailers in the final quarter of 2008 or £1,363 per head.
Though this is an increase of 2% on 2007, it is the second lowest growth rate in 20 years and the £1.6bn extra shoppers will be spending will be eaten up by food inflation.
Maureen Hinton, lead analyst at Verdict, said: "Not surprisingly food and grocery accounts for the largest share of shoppers’ spending over the Christmas period (38%), and with food inflation running at 6.3% this quarter, consumers are facing a more expensive Christmas feast. But unavoidable though this extra expense will be, shoppers will be more careful in what they buy, balancing spending on treats with cutbacks on everyday foods."
Stripping out the impact of inflation, volume growth in the sector will be only 1.3%, less than half the 2.8% achieved last year. With cost inflation running at over 3%, the squeeze on retailers’ margins will be intense, warns Verdict.
Catherine Tobiasinsky, head of retail at property consultancy, EC Harris, added: "In the toughest economy for years; all instincts are telling retailers to baton down the hatches. In reality, anything is possible, with it being the best time in the last 15 years to reduce operational costs and beat inflation by maximising built assets. Tenants are becoming customers, retailers are becoming developers – undoubtedly times are tough, but now is the time to innovate."