Retailers Stave-off Consumer Tipping Point but for How Long?
The first of the regular monthly retail figures, the Retail Traffic Index™ from research group SPSL, shows a small year-on-year decline, the first since February. In July the number of shoppers entering retail outlets across the UK was down by 1.0% on July 2006, but up by 7.1% on June. In itself this small year-on-year drop seems relatively insignificant, but it may be the first clear sign of the long-awaited consumer tipping point which retailers have been working so hard to stave-off.
According to Dr. Tim Denison, Director of Knowledge Management at SPSL and leading retail psychologist; “Everyone has long been expecting the arrival of a retail downturn. The fact is that we are still really awaiting it. June saw surprisingly buoyant growth in retail sales and traffic figures, partly attributable to a weak comparator month influenced by the World Cup in 2006.
“Granted, in July we have seen retail footfall fall below its 2006 level, for the first time in six months, but a 1% decline is not sufficient to signify that the tipping point has been reached. Overall, we might have feared far worse results particularly in light of the floods. In Northern England and the West Country, where the flooding hit hardest, shopper numbers in July suffered worst; down 2.6% and 1.9% on 2006 respectively.
“This is not to say that July was an easy month for retailers, far from it. The wet spring and early summer left retailers with mountains of excess stock to clear.
Sale prices have been in serious freefall all month and have certainly helped clear the decks and stimulate trade giving retailers a respectable if not entirely satisfactory month. Whether or not consumers are beginning to feel the squeeze, the British shopper still loves a ‘bargain’. The fact that John Lewis reported record trading on its first day of its summer clearance, up a third on the previous year, is testament to this.
In effect the extended Sales have probably just bought retailers a bit of extra time. We cannot fully disentangle their stimulant action and the suppressant force of the floods from the underlying trend and the so-called squeeze on the consumer, at this stage. However, a detailed breakdown of the RTI over the course of July shows a clear degradation in traffic levels once the initial, high impact promotional boost had disappeared. With this card now played, and shopper numbers already in decline, this makes the outlook extremely tough for the rest of the year.
“I fear the tipping point is now just around the corner. If the recent slowdown in house price inflation (only +0.1% last month) is sustained, it is likely to severely knock one of the last refuges of consumer confidence and curtail readiness to shop.
“With the interest rate rises now beginning to register and with the sustained rise this year in taxes and household bills against a background of subdued wage increases, the squeeze is definitely on. For retailers, their short term futures will depend on scale and reach; scale to weather the impending downturn and reach because not everywhere or everyone will be squeezed. Many Londoners, for instance, may continue to ride high on the back of earlier City bonuses, but it’s less certain, thanks to the tumble in the shares market last week threatening knock-on effects on the capital’s financial services’ sector. For others, even the most tempting bargain may soon invoke one debt too many.”