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Business News

Think tank predicts shoppers will spend more on less this year

Analysts report that 2011 will not be as bad as feared, particularly for high-end retailers

Shoppers will spend more this year than last as they "trade up but buy less often," according to a group of top retail advisers and analysts.

KPMG/Synovate, which is due to publish its findings this week, predicts the sector might not be hit as hard this year as first thought. The think tank's white paper, What are the prospects for UK retail in 2011, said there is "some optimism" for this year, beyond the first quarter.

This is in contrast to the gloomy outlook from the GFK Consumer Confidence index which has dropped eight points to minus 29 – the lowest level since March 2009. While the Office for National Statistics said Britain suffered the worst annual performance for any December since records began in 1988, sparking fears that 2011 can only get worse.

Helen Dickinson, KPMG's head of retail, said: "The worry since the downturn kicked-in was that retail would fall off a cliff. The past three years have provided enough evidence to show that consumers continue to love shopping and will therefore find ways to spend whatever the state of the wider economy. Consumers will spend more in pound terms than they did in 2010."

Although the think tank warned the volume of sales will be down and the increased pressure on spending will have a negative impact on many retailers, it said the most successful retailers will continue to do well.

Nick Bubb, a retail analyst at Arden Partners, said: "Real income pressure, like ever-rising petrol prices and the threat of higher mortgage rates will be felt more keenly in the mass market than at the 'John Lewis' end. We will continue to see a difference between retailers affected by the supermarket competition and those with more robust market positions."

Neil Saunders, a consulting director at research group Verdict Consulting, said: "Although the overall retail pie may continue to get slightly larger, not all retailers will receive a slice. Retailers, therefore, need to ensure that their propositions exceed customer expectations to ensure any spend which is made is made with them.

"2011 will not be the year of trading down; it's likely to be the era in which consumers seek more value for money – perhaps trading up but buying less to fund more expensive purchases."

The think tank did warn that any rise in interest rates in 2011 will be an issue for the sector.

Vicky Redwood, a consumer and debt specialist at Capital Economics, said: "Consumers face many headwinds. Inflation is likely to stay high for several months, but pay growth is unlikely to keep up. At least the Monetary Policy Committee has not been panicked into raising interest rates yet. But a rate hike will remain a threat throughout much of 2011.

"But consumers have a tendency to shrug off whatever is thrown at them. We would be wary of underestimating their resilience this time too."