Will Christmas prove a final spree for shoppers?

With VAT going up in January and spending cuts expected to bite next year, are Britons likely to hang up their shopping bags in the new year? James Thompson reports


Oh no they won't!

For those arriving in the UK after an extended period away a cursory glance at the business headlines would probably convince them that the country is heading for a double-dip recession as the fragile recovery in consumer spending is derailed.

However, the alternative view held by some large retailers is that 2011 is more likely to resemble the resilient growth of this year than the horror story of plummeting sales and a swath of companies going into administration seen in the three months either side of Christmas 2008. Granted, all retailers say that the first quarter of 2011 is likely to bring challenging trading, given the rise in VAT to 20 per cent on 4 January and continued pressure on household budgets

But the performance of many of the UK's biggest retailers, including the bellwethers Marks & Spencer and John Lewis, has been far better than expected this year and there seem few, if any, signs the wheels are about to come off.

John Lewis, which has 28 department stores and four John Lewis at Home shops, has enjoyed a barnstorming performance for most of this year and is on track for record sales in 2010/11. Its sales jumped by 8.7 per cent to £99.4m for the week ending 27 November. Nat Wakely, director of selling operations at John Lewis, said: "There will be a first-quarter post-VAT blip. But the longer term trend of a slow and steady growth out of recession is the one we would sign up to." He cites "consistent" spending across all its product categories, compared with the dark days of Christmas 2008 when shoppers cut back on everything apart from presents for their children.

"If you take last week, home, fashion and electronics were all growing by between 7 per cent and 11 per cent," Mr Wakely said.

Christine Cross, retail and consumer adviser to the accountancy firm PwC, is also cautious about the first six months of next year but is more upbeat about the second half.

She says: "It is going to be game of two halves." Ms Cross thinks that by mid 2011 there will have been a "relevelling" of prices caused by higher inflation. She hopes that retail initiatives – such as Morrisons' scheme to create 1,000 jobs for homeless and vulnerable people in the next three years – will help to mitigate public-sector job losses.

Indeed, the Government yesterday revised down its forecast for public-sector job losses to 330,000 over the next four years, compared with its June figure of 490,000.

However, rising public sector unemployment is likely to have a bigger impact on the regions than London. Ms Cross says: "There is a little bit of a North-South divide at the moment but I think it will harden. London feels pretty buoyant at the moment, but if you go north of Birmingham it certainly does not feel as buoyant."

Overall, John Lewis's recent performance and the breadth of its customer base suggests a double-dip is unlikely. As Mr Wakely says: "Two-thirds of the UK population shop with us at least once a year."

Oh yes they will!

Any shopkeeper who consumes too much brandy on New Year's Eve may have a nightmare about waking up to a rise in VAT, spiralling commodity prices and a consumer chopping up their credit cards. However, this will be the sober reality they face in January ahead of a year that looks set to be a long, hard slog for the sector.

Jim McCarthy, the chief executive of Poundland, the single-price discount retailer which has performed strongly before, during and after the recession, voices the concerns of many over consumer confidence in 2011.

He says: "We have got a consumer who lacks confidence, given the economy, house-price stagnation and wage increases not keeping up with inflation. When people lack confidence they visit the shops less often and they shop around for value."

Richard Hyman, the strategic retail adviser to the accountancy firm Deloitte, says: "The outlook for next year is that it will be slightly tougher than this year."

He forecasts a fall in total retail spend by value of between 1 per cent and 2 per cent in 2011, which is significant in an industry where the average profit margin is about 6 per cent.

While fashion retailers from Next to New Look have warned that the surge in cotton prices could lead to clothing prices being 8 per cent higher next year, all big retailers face other increases in commodity prices and supply chain costs, such as record freight rates on shipments from the Far East. These costs will largely be passed on to consumers. Mr Hyman said: "We will be importing inflation."

However, Derek Lovelock, the chairman of Aurora Fashions, which owns the Karen Millen, Warehouse, Oasis and Coast fashion chains, is neither downbeat nor upbeat but says 2011 will be "different" to this year.

"We think there is going to be a change in consumer spending behaviour and we are already seeing it. Customers are becoming more discerning and viewing purchasing as an investment. So it is no longer just about price – they want quality, exclusivity and longevity," he says.

"Retailers are going to have to work harder to build and maintain relationships to ensure customer loyalty and continued spend."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor
The ZX Spectrum has been crowd-funded back into play - with some 21st-century tweaks

The ZX Spectrum is back

The ZX Spectrum was the original - and for some players, still the best. David Crookes meets the fans who've kept the games' flames lit
Grace of Monaco film panned: even the screenwriter pours scorn on biopic starring Nicole Kidman

Even the screenwriter pours scorn on Grace of Monaco biopic

The critics had a field day after last year's premiere, but the savaging goes on
Menstrual Hygiene Day: The strange ideas people used to believe about periods

Menstrual Hygiene Day: The strange ideas people once had about periods

If one was missed, vomiting blood was seen as a viable alternative
The best work perks: From free travel cards to making dreams come true (really)

The quirks of work perks

From free travel cards to making dreams come true (really)
Is bridge the latest twee pastime to get hip?

Is bridge becoming hip?

The number of young players has trebled in the past year. Gillian Orr discovers if this old game has new tricks
Long author-lists on research papers are threatening the academic work system

The rise of 'hyperauthorship'

Now that academic papers are written by thousands (yes, thousands) of contributors, it's getting hard to tell workers from shirkers
The rise of Lego Clubs: How toys are helping children struggling with social interaction to build better relationships

The rise of Lego Clubs

How toys are helping children struggling with social interaction to build better relationships
5 best running glasses

On your marks: 5 best running glasses

Whether you’re pounding pavements, parks or hill passes, keep your eyes protected in all weathers
Joe Root: 'Ben Stokes gives everything – he’s rubbing off on us all'

'Ben Stokes gives everything – he’s rubbing off on us all'

Joe Root says the England dressing room is a happy place again – and Stokes is the catalyst
Raif Badawi: Wife pleads for fresh EU help as Saudi blogger's health worsens

Please save my husband

As the health of blogger Raif Badawi worsens in prison, his wife urges EU governments to put pressure on the Saudi Arabian royal family to allow her husband to join his family in Canada