Why are people spending less this Christmas?

Katy Straub is spending less this Christmas Image copyright Katy Straub

There are discounts galore on the High Street, and online retailers have also started discounting products, 12 days before Christmas. Sales usually rise in the run-up to Christmas, so why are consumers spending less this year?

In November, market research firm GfK's long-running Consumer Confidence Index dropped by three points to -13.

This comes on the back of gloomy news from retailers such as Bonmarché, which said Black Friday sales were "extremely poor", and indications that people just haven't been spending the way they did during the holiday season in previous years.

Katy Straub, 22, from London, says that she is definitely spending less on Christmas this year because of several factors, including rising prices in stores, and the ongoing political uncertainty.

"I am worried about Brexit," she tells the BBC. "I'm just trying to be aware of my spending habits as the future of the economy is very unknown."

According to GfK, the number one concern for people in the UK at present is having enough money to live and pay bills, followed by the NHS.

The third most pressing concern is Brexit.

"The reason that the consumer confidence number is negative, is because there's no certainty of a bright and rosy future," explains Joe Staton, client strategy director at GfK."The chancellor came out and said that Brexit would make everyone worse off. That has scared people. Consumers are like markets, and if there is any political or financial uncertainty, markets will decline, and consumers are the same."

Less disposable income

Latest figures from the Office for National Statistics show that wages are continuing to rise at their highest level for nearly a decade.

Yet an analysis done for the BBC by the Institute for Fiscal Studies in September shows that on average, people's real annual wages are £800 lower than ten years ago.

Some of the young adults the BBC spoke to said that they were living on less income in 2018 than they did previously, so they don't have much money for Christmas this year.

Image copyright AFP
Image caption Young adults say they are living on lower incomes than in previous years

But wages are not the only reason for this. Many British consumers are also feeling the pinch due to the rising price of groceries and other essentials like energy bills, thanks to inflation and the fall in the pound.

"The last few years I have been shorter and shorter of money the closer it gets to December, trying to buy presents for family," says Emmy Lilian, 25, a learning support assistant in Hampshire.

"I've noticed prices always seem to go up just a little bit around Christmas time, which makes it more difficult if you have a tight budget because of living expenses."

Black Friday effect

Black Friday started in the US as a way to kick off Christmas spending after the Thanksgiving holiday weekend. It was originally meant to be an annual shopping event that started on the day after Thanksgiving, which is on the fourth Thursday of November, and lasted for three days.

Over time, the shopping event crossed the pond to the UK, where it was extended to the Monday after Thanksgiving, otherwise known as "Cyber Monday".

But now the lines seem to have blurred - since 2016, retailers, led notably by Amazon, have started to introduce deals in the week leading up to Black Friday, and this year, Black Friday sales continued for two weeks after the original weekend.

"Black Friday is now an indeterminate period," explains Andy Mulcahy, strategy and insight director at IMRG, a trade body for UK online retailers.

Image copyright SOPA Images/LightRocket
Image caption Black Friday sales at House of Fraser on Oxford Street in November

IMRG had expected sales on the day of Black Friday in the UK to rise by 13%, but they actually only went up by 7.3%.

It also predicted that sales would grow by 12% in the week leading up to Black Friday, but sales only rose by 6.8%.

"Is it that people are spending less, or is it that the spend is spread out across the whole month of November?" Mr Mulcahy asks.

IMRG suspects that the disappointing Black Friday sales could be due to the fact that some people had not been paid by 22 November.

"Retailers have told me that the first week of December was pretty good for sales, so it's possible people hadn't been paid yet," he adds.

"People still have to buy stuff for Christmas, but they're just doing it a bit later this year."

Savvy shopping

Both Mr Mulcahy and Mr Staton agree that shoppers are becoming more savvy, going online to compare prices, and waiting for major retailers to offer more discounts, the closer it gets to Christmas.

In December 2017, a few days before Christmas some High Street retailers suddenly dropped prices by up to 50%, instead of waiting for the Boxing Day sales.

This year, High Street retailers are already discounting with 12 days to go before Christmas, and although there are exceptions, many clothes and department stores are offering discounts of between 10-30%.

But why are online retailers also discounting their prices?

Image copyright AFP
Image caption Shops on London's Oxford Street are already discounting products 12 days before Christmas

Online retailers have performed extremely well this year, with many fast fashion retailers reporting record-breaking profits.

So it is unusual that the likes of Asos and Boohoo are now offering discounts of up to 60%.

"It's a problem of contagion. You get a few big retailers with well-published problems, as we've seen this year. That forces them into discounts, and that forces their competitors into discounts," says Mr Mulcahy.

"What all the discounting does, is it creates in the mind of the shopper this idea that you don't really have to go and spend full price."

Ms Straub says she prefers not to wait until the last minute to buy presents: "I do quite a lot online, as it's more convenient, plus I often find more discounts."

In contrast, Ms Lilian says that she takes advantage of sales running throughout the year to purchase Christmas presents, so by the time December rolls round, she doesn't need to visit the shops.

"I went shopping on the High Street today and was surprised how pricey things were. I didn't buy anything," says Rachel Evans, 30, a museum custodian in North Wales.

Apart from the price, Ms Evans says that she would much rather shop online, because the roads are busy, and it is a pain to look for places to park and pay for parking.

Image copyright Getty Images
Image caption People are happy to pick items up from stores, rather than shopping there

However, it is possible that footfall will increase at High Street shops in the days just before Christmas.

IMRG says that in-store click and collect has become hugely popular, and now makes up one-in-three sales for those retailers that have both bricks and mortar stores as well as online shops.

Consumers like making purchasing decisions at their leisure online, and then saving on delivery costs by dropping into the store to pick up products. Retailers like it because it is much cheaper than using a third party delivery service.

People are also likely to buy other items in the store when they come to pick up their purchase.

"In the week before Christmas it's incredibly strong, people still put in orders on the 23rd of December and then pick them up on Christmas Eve - it accounts for a huge share of sales," says Mr Mulcahy.

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