The recent government spending review and impending VAT rise in January has left many marketers wondering if consumers will continue to spend their cash on the high street, especially in the run-up to Christmas.
But there is a reason for festive cheer among businesses because the youth market is in fact feeling quite flush, with a quarter of 18- to 24-year-olds likely to spend more this Christmas compared with last year. However, only 15% of 25- to 34-year-olds and 9% of 35- to 44-year-olds say they plan to spend more money on preparing for 25 December, according to research by ICM that has been seen exclusively by Marketing Week.
The younger generation feel less affected by government spending cuts and VAT rises, says James Turner, director at ICM Research. “With any recession, it’s always this age group that is less likely to be affected by things because they don’t have all of life’s baggage and generally have a large disposable income,” he says.
However, those who are expecting a bumper festive season on the high street may be disappointed because the research reveals that overall 31% of consumers who celebrate Christmas say they will spend less this festive season, and more than half believe they will spend the same amount as last year.
The VAT increase, due to come into effect on 4 January will motivate 36% of consumers to make more major purchases before the New Year.
Nathan Bartlett, head of retail at ICM Research, says there is no harm in marketers leading on “get the cheaper price now because it will go up in January” to encourage more shoppers to part with their cash. It also gives businesses an excuse to talk to consumers in an informative way, he says. “It’s an opportunity to credibly communicate with your customers, either above-the-line or below-the-line and on your website,” he suggests.
In the run-up to Christmas and beyond, Bartlett explains that although people say they have less disposable income, they are still buying big-ticket items. “Everyone is talking about the fact they don’t have any money and yet when a big product such as the iPad is launched thousands of people go out and buy it. I don’t think the nation accepts that we’ve entered an economic grey period. I’m not sure consumers are necessarily prepared to stop buying some of the luxuries.”
But there are plenty of areas where people are planning to spend less money. Jewellery, sports equipment and premium beauty products will be the high street sectors set to suffer the most from consumer cutbacks, according to the research. Thirty-six per cent of consumers think they will spend less on jewellery compared with last year, 31% will spend less on sports gear and 30% will cut back on premium beauty products.
But putting a good meal on the table on Christmas Day is still a priority for most, with only 10% believing they will spend less on their festive grocery shop. People also seem willing to shell out for books, toys and games because families don’t want to stop treating their children, says Bartlett.
He says: “The categories that are losing less [custom] such as toys, games and books, are those that you’d expect to go with kids.”
If marketers want to drive a last-minute push to their Christmas retail strategy, Bartlett suggests bundling up products targeted at an older demographic along with children’s products, so that the consumer makes a saving but basket spend still goes up.
Consumers are also planning to spend less on luxury foods this year, according to the survey, which Turner thinks points to a return to austerity cooking. “You’ve got the main grocery items holding up, but luxury food items were down 28% in the ranking,” says Turner, although he warns that what people say they are going to cut back on and what actually happens when they get to the shops may differ.
“I was quite surprised to see how much of the usual Christmas items, such as beauty products, games consoles and laptops, people say they are not going to buy,” says Turner. “But we don’t know whether they will be forced into a last-minute guilt trip purchase or not.”
But what the figures do say for certain is that consumers are worried and New Year resolutions in 2011 could include major cutbacks.
The frontline: we ask marketers on the frontline whether our ’trends’ research matches their experience on the ground
Head of marketing
The research makes sense in terms of how people behave. However, I think there’s a difference in what people say they’re going to do and what they will actually do because of the general nature of Christmas. There are certain things you have to have, and groceries probably form part of that.
In terms of encouraging people to spend in-store, it’s very much about look and feel. There are the decorations, which are about making people feel Christmassy. We’ve created our point of sale to fit with our Christmas decorations and we are stocking products that we believe are relevant for the time of year.
Alcohol is an expensive high-ticket item and when times are tougher you automatically have to trim the belt somewhere. Luxury items fit into that camp as well. I would guess that the number of people who actually cut down on alcohol and luxury items, in terms of spend, is probably less than the research suggests. Once people are in store they’ll think “Oh well, it’s only an extra bottle of wine” or “I do really want the nice biscuits because it’s Christmas and I’ve got friends and family coming who I want to impress”. But I think you’ll see an even bigger trend for value hunting in January.
A lot of what we sell is obviously VAT-able but nothing particularly sits in that [high ticket item] camp. We talked about doing a pre-VAT rise promotion, as many people have done, but we’ve decided to carry on as we were. The average basket is about £4, so a 2.5% increase is not going to have a huge amount of impact.
Head of marketing
We’ve got other, bigger messages that we think are more important to talk about to our public than the change in the VAT rate. Other than the higher ticket items like cars, I think it’s a little bit of a non-issue because people are going to hold off, waiting for the January sales anyway.
For a retailer to put up their prices all at once is extremely challenging. I’m going to have to change all of our prices and all of our displays in 65 stores – that’s a massive task. So we’re rolling it out throughout the first quarter of next year.
There are other, bigger changes that will have an impact on our prices in the new year, such as the fact that we’ve been holding off raising our prices as a result of the gold price increase. We could change our prices every week, but we have chosen to increase them once we get to a point where we don’t feel we can absorb it anymore.
We’ve seen good online growth this year and launched a new site about a month ago. It has better functionality, enabling customers to find the products they want more easily.
When the public are asked questions [about their spending habits], they may respond differently to what they actually do. We’re getting on with what we do to attract customers old and new to our stores.
Chief commercial officer
Consumer products are a new category for us, so we’re incredibly confident. We’re about three months into our strategy. We are aiming for a projected sell-through of consumer products of $100m next year. We’ve got trading cards, a range of children’s books and we’ve done a deal with Vivid Imaginations to launch our first children’s toys over Christmas.
Every single product we do is available online and we feel, as the research suggests, that is where consumers are going to buy goods. For our self-published and self-developed products, we feel that’s where the majority of our sales are going to come from. We have 30 million players online, so it’s a logical progression for our consumer base to purchase these things over the internet.
All of these products, although they stand up in their own right, tie back into the Moshi Monsters virtual world. By integrating the virtual world into consumer products, we’re essentially mobilising our online community, which has led to some incredible sell through in terms of the initial products we’ve launched.
Online vs high street
Online shopping continues to grow in popularity in the run-up to Christmas, according to ICM’s research. Instead of fighting through the crowds on the high street, 34% are going to buy more online than they did last year.
This move away from traditional high street shopping is mirrored by research released last week by Tesco Direct showing that one in ten UK consumers will do their Christmas shopping on their mobiles, and 78% plan to buy gifts online.
“One reason for this increase is the number of independent product review sites and social media communities around topics and interest areas relating to retail,” explains James Turner, director at ICM Research.
He suggests that if marketers are to capitalise on this trend they must make sure that their online services are working efficiently because retailers’ performance during the festive season will have a bearing on which websites consumers choose to buy from in 2011. “The more people shop online, the more people rely on it, the greatest chance there is to fail. The whole system needs to be top notch,” warns Turner.