As retailers reel from a particularly slow summer, they cannot even count on Christmas for some cheer. It seems price-conscious consumers are trimming their present-lists and shopping around
The Christmas cards are on the shelves, and brands from toy manufacturer Leapfrog to video-games giant Nintendo are ramping up their advertising and sponsorships (MW September 15) in the approach to Christmas.
High street retailers have experienced a widely reported slowdown, and increased competition has led stores to sustain sales for longer in an attempt to shift surplus stock. But how successful has this strategy been in luring consumers back onto the high street and are we becoming more price conscious when we spend, not just on ourselves but also on other people?
According to TNS GiftTrak, the total value of the gifts market fell by &£519m in the year to June 2005. This is the first time a decline has been recorded since TNS GiftTrak first started monitoring the sector in 2000. The first indicator of a softening in the market was last Christmas, when consumer spending fell by 4.9 per cent, from &£15.1bn for Christmas 2003 to &£14.4bn in 2004. Retail spend over this period was affected by lower consumer confidence, higher interest rates and heavy discounting in shops.
Consumers cut down on “non-essential” gifts, such as top-up presents or gifts for people outside their immediate circle of family and friends. Lower social grades (C2DE) primarily drove this decline, with people cutting back on the amount spent per gift, and TNS anticipates that the market will be even more price sensitive this year.
In the run-up to Christmas, the main gifts for children, such as toys and games, iPods, computers and clothing, are likely to fare better than other categories. The number of gifts bought for children should remain unaffected by the general consumer downturn, as parents don’t want to let their offspring down. However, parents may opt for cheaper outlets and shop around to find the best bargains. Retailers are likely to use these types of gifts to attract customers to their stores and there are likely to be more offers and price competition among retailers. In-home entertainment product categories such as televisions, radios, stereos, videos and DVDs, books, games consoles and electronic games should also benefit from a slowdown in the economy, as consumers become more likely to stay at home rather than go out.
One area that is likely to experience growth in the approach to Christmas is online retail. The internet now accounts for 7.5 per cent of gift purchases and generates &£2.7bn in sales and this will continue to increase in coming months.
Another sector of the gift market that has performed strongly in recent months is the impulse category. Buying presents on impulse is a growing trend among consumers who have decided they don’t need special occasions to treat themselves or others. Supermarkets in particular have benefited from this trend, and some might argue that they created it, by stocking more non-food products such as CDs, videos and DVDs, toys and games, children’s clothing and electronic goods.
In the year to June 2005, &£2.5bn was spent on gifts in grocery stores, up 60 per cent compared with the same period in 2002. While convenience may have fuelled this growth, price is also likely to be a major factor. TNS research shows that the average spend per gift bought in multiple grocers remains significantly lower (&£11.08) than the overall average spend per gift (&£26.14). In fact, most of the gifts bought in multiple grocers are top-up presents and gifts for smaller occasions (such as thank you gifts) and for distant recipients. The next challenge for multiple grocers is to move into the main gift segment of the market. With price continuing to be a major factor this Christmas, supermarkets are likely to benefit heavily from greater price-consciousness among consumers, particularly if they take this opportunity to diversify and provide a wider range of gifts.
Recently reduced interest rates might not be enough to encourage consumers to spend more and reverse the downward trend in time for Christmas. The soaring price of energy in particular will undoubtedly have a disproportionate effect upon poorer households and will certainly affect their gift expenditure. Consumers are more likely than ever to compare prices and are fully aware that many retailers are going through a rough time at the moment and that most of them will be offering some significant discounts in order to boost their sales. British consumers are in a very strong position this year to get the best bargains possible.
Trends is edited by Nathalie Kilby. Alex Seron, managing consultant at TNS GiftTrak, contributed to this week’s Trends Insight.