What will drive retail spending in 2018?

11th December 2017

2017 has been a tough year for retailers. Uncertain economic and political conditions have diminished consumer confidence and made spending particularly volatile. So what do retailers need to do in order to weather the storm? Recent consumer research for Retail Week conducted by 3Gem Research and Insight has highlighted the factors that will drive retail spending next year:

What will drive retail spending?

Christmas predictors

According to Retail Week, consumer spending over the festive period will determine spending in 2018. James Sawley, head of retail and leisure at HSBC’s UK corporate banking division agrees:

“Christmas is so important. For the average clothing retailer, it is the profit for the year. The momentum gained from Christmas is key and, at the moment, it is looking uncertain.

“October has been weak. Retailers are telling us consumers have got back from their summer holidays and seen the credit card bills and realised how much it has cost them.”

However the survey conducted by Retail Week implies that it is not all doom and gloom for the retail sector. 45% of respondents said that they expected to spend more next year than in 2017 and just 21% said they would spend less. Much of this projected spend is bolstered by grocery sales and people will always need to eat. 43% of shoppers said that they expect to spend more on food next year and just 16% said they intended to spend less.

Predicted spends on fashion and home improvements should expect to see a significant decrease as analysts observe a shift to experiential sales rather than physical goods.

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The experience economy

Over the past few years the high street has suffered where consumers have decided to spend their money on experiences and making memories, rather than on new furniture or clothes.

Speaking to Retail Week, Paul Lockstone, Managing Director of Corporate Communications at Barclaycard suggested that physical retailers should place greater emphasis on the experience economy:

“Time with friends and family is becoming more important than household items and physical goods. The notion of experience plays to the need for social media sharing”

But not everyone is using social media. Have retailers been overplaying the social aspect of their offer?

What will boost consumer confidence?

Going social

The retail industry has placed a lot of focus on using social media channels to lure and keep customers but despite this, Retail Week suggest that these efforts have failed to filter through to the majority of consumers. They report that 56% of shoppers said that they did not use any kind of social media.

However, they suggest that retailers should not ignore Facebook as 30% of consumers use it. When using social channels it is important to exercise caution and don’t assume that everyone is engaged with your business or has seen your Facebook post or your tweets.

Rising interest

Paul Martin, Head of Retail at KPMG, told Retail Week that he thought the recent rise in interest rates were making personal debt difficult for some. Where people have previously been happy to put things on the credit card, their debts are now becoming unmanageable and they are starting to exercise more caution.

Annual consumer credit growth in September was at 9.9%, with outstanding loans of £200bn – a figure not seen since 2008. But Martin suggests this is now untenable:

“Last Christmas, a lot of people were splashing out, in good-old British style. That was driven by an increase in personal debt.

“Overall, the economy is stronger than it was eight or nine years ago. That insulates retailers from a significant crash, unless there is a cliff-edge Brexit.

“Physical stores still account for 80% of sales; higher in some categories. [But] online sales are fastest-growing and at double-digit growth. We expect online sales to reach 30% of all sales by 2020, but we are seeing the first sight of that growth slowing down.”

Quality and price

When asked what they found important in physical stores, respondents suggested four key factors

  • A wide selection of products (58%)
  • Customer service (44%)
  • Deals and promotions exclusive to the store or branch (38%) and
  • Manned check-outs (35%).

When it comes down to it, no amount of clever marketing is going to compensate for traditional values. Perhaps retailers should be focusing on these.

The two key factors in driving sales are the same as always: quality and price. You can see this very clearly in the fastest growth sectors of physical retail: the discount market, as Paul Martin concurs:

“German supermarkets and budget clothing retailers mean the market is becoming polarised between premium shops and discount retailers. It is the middle market that faces the greatest challenge and in the UK that is the largest slice of the market. As the segment contains many highly leveraged smaller firms, the UK retail sector can expect to see some significant store closures in the next year.”

2018 is going to be another challenging year for retailers who must stay agile in order to survive. We hope that the key findings of the Retail Week survey will inspire you to succeed. And if you’re somewhere in the middle it may be time to ascend to the premium market or become a discount retailer. Let us know your thoughts in the comments section below.

 


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