January: A Quick Burst of Sale Fever Followed by Retail Restraint
Retail Traffic Index™ figures from the retail research group, SPSL, released today show that UK in-store footfall for January was down by 3.3% over the January 2006 level. A busy start to the Sales was followed by a rapid tail-off as consumers responded to the MPC’s unexpected decision to raise interest rates. January also saw a month on month fall of 27.7%.
Dr. Tim Denison, Director of Knowledge Management at SPSL and leading retail psychologist comments; “We are seeing a very interesting pattern developing when we overlay sales and customer counting data.
“We can see the effects of a widening gap between consumers who are still feeling confident and protected from the rising costs of living and those who are not. Our first group, the ‘half-fulls’ is still out there shopping and comprises those who are actually not only more-inclined to spend, a fact reflected in rising store conversion rates, but they are spending more too as their average basket values show. They consider that considerable equity in their homes will cushion any economic downturn ahead.
“Conversely, the ‘half-empties’, those for whom the combined pressures of increased utility, borrowing and other household costs are beginning to cause pain and pessimism about the outlook, are visiting the shops less often. It’s their means to avoid the temptation of using more ‘easy-money’ credit and store cards, aware that their unsecured debt is becoming uncomfortably high. They are denying themselves ‘retail therapy’ in order to balance their household books.
“It has to be said, though, that once again the supermarkets are one step ahead of the game. By turning their once-food-only outlets into full-offer ‘department’ stores, they are exposing the everyday shopper to a greater range of non-essentials, and making a disciplined stand against excessive spending less easy.
“All in all, it is a time for many consumers to sober up to a new reality, one in which they should constrain their spending or suffer the consequences. The fact that borrowing on credit cards fell in December by £263m according to the British Bankers’ Association should be welcomed and is a sign that people are heeding this advice. Nevertheless with house repossessions up by 65% on 2005 to over 17,000 last year and personal insolvencies also up by over 60% year-on-year, it is equally clear that some unfortunates are not responding quickly or steadfastly enough. As the pressure of service debts grow, on the back of rising interest rates, more will inevitably become vulnerable.
“For retailers, the best we can hope in the immediate future is that demand will continue to soften only slightly, tempered by the ‘half-fulls’. However, the latest rise in interest rates shows clear intent by the Bank to quell excessive growth in house prices and to get the “half-fulls” to think twice about the size of their equity cushion. The “half-empties” on the other hand may seek to push for higher wage settlements to recompense for the higher cost of living, but at the possible expense of job security. In both cases, consumers are likely to show retail restraint, until the impact of these events is better known.