The days of spend, spend, spend, are over

Why, if this is a boom, do the shops seem so empty? We are buying more `savings products', and less goods
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Look at a graph of retail sales, and this ought to be the boom Christmas of all time. The volume of retail sales has been shooting up since the beginning of last year and is now 7 per cent higher than at its peak of the last cycle in 1990. More p eople are in work every month, with employment (measured by the labour force survey) some 300,000 up on its trough in the first quarter of 1993. And earnings are running about 4 per cent up year-on-year, against retail prices at about 2 per cent.

Now contrast that with the reports from the shops. Walk down any high street and there will be a string of pre-Christmas sales - understandable perhaps in recession but unheard of during the last boom. Yesterday the director-general of the Building Societies Association said that the surge in money flowing into building societies could be explained by weak retail sales, the rise in interest rates and caution associated with the Budget. The November retail sales figures published last week were describedas "appalling", when in fact they were the same as in October and 2.5 per cent higher than last year. They might be bad in the eyes of the shops but, rationally, they were perfectly acceptable.

As far as the figures are concerned, then, this is a boom; but as far as the shops - and the experts - are concerned, retail sales are disappointing. How on earth does one reconcile these two diametrically opposite perceptions?

Easy. There are at least four reasons why shopping this Christmas is utterly different from the Christmases of the late Eighties boom, which together explain why, if this is indeed a boom, the shops seem so empty.

Start with Sunday trading. Adding one day a week to the time when most shops are open is much the same as adding one-seventh to the total floor area of the nation's shops. True, some shops were open on Sundays in the late Eighties and, true, opening hou r s on Sundays are shorter than during the week. Let's say, then, that the effective increase in retail space is only one-tenth. Even so, that is the equivalent to 5 million fewer people competing at any one time to get into a shop. Inevitably, the shopsare less crowded, and they would be less crowded even had there been no increase at all in the retail space over the last six or so years.

But there has been, and this is the second reason why shopping does not feel "boomy". Much has been made of the fact that new out-of-town shopping centres kill shops in the high street, and they do certainly take custom away. But it takes a while for such shops to decide to close and since sites may be re-let, it takes even longer for existing retail space to be taken out of commission. So much of the new space is additional space. Result? Less crowded shops again.

Third, there is the complex (and still not properly understood) impact of zero inflation. Retail prices overall may be rising at 2 per cent, but if you allow for improvements in quality that is just about equivalent to no price increase at all. Certainly, in consumer electronics not only is quality racing forward, prices are plunging, too. At any rate, the changes in price are now so small that consumers need feel no rush to buy, and may benefit from holding back.

This changes the relationship between buyers and sellers. If buyers feel no need to rush, sellers must do more to entice them: they have to work harder to obtain the same volume of sales. This translates most obviously into the pre-Christmas label saying"40 per cent off", or "free credit". But it also translates into insecurity among retailers: what new ideas must they come up with to secure the punters' interest? That is new for this part of the cycle. Forgive the traders if they do not feel like celebrating.

All this would be enough to account for a "feel-bad" Christmas as far as the shops are concerned, but there is a further new factor operating at the moment: the National Lottery. The Lottery was taking around £50m a week during November. Some of that maycome out of savings; some may have been diverted from the pools or the horses. And some of the winnings will be spent straight away. But the weekly "take" rose during the first two weeks of this month and, according to the investment bankers Goldman Sachs, if this growth is maintained, retail sales in December could be as much as 1.7 per cent below the level they would otherwise have been. That is enough to have an enormous effect on the profitability of shops. Eventually, most Lottery money will be recycled into the economy, but for the moment, it has the effect of cutting our spending and increasing our saving.

This prompts a further thought. Sure, we can explain this oddity whereby decent growth in retail sales does not show in crowded shops. But there may be a further message. This Christmas may seem different: but so will Christmases in general in the future. This is the new normality.

Quite aside from the forces noted above, there are two big changes taking place at the moment in the way we organise our finances. One is that we are having to become accustomed to saving a higher proportion of our income, partly because of greater job insecurity and the changing age structure of the population. These changes have been widely discussed. Less discussion has gone into the practical impact on the spending habits of ordinary people: the fact, for example, that they are tending to spend moreon "savings products" - pensions, life assurance and the like, and so have less to spend on goods in the shops.

This inevitably changes the nature not just of Christmas, but of consumption in general. Some earnest (or prudent) parents might go as far as buying their children unit trusts instead of a new computer game - although they will hardly expect the kids to be overjoyed. But the more prevalent change is that families are shifting a proportion of their spending towards long-term services rather than short-term products. All very necessary for society as a whole, but not the obvious thrill of the new car.

Besides, even if funds are available for immediate gratification, they may not be spent in the shops. This is the second change. We seem to be spending relatively less on things and more on services. As the balance of the population ages there are shiftsin the things it buys: fancy holidays instead of new cars or television sets. Journeys through the airports are soaring, and there is no shortage of people wanting to spend their money on the QE2. Were consumer technology to leap forward in the way it did in the Fifties and Sixties, maybe we would again rush to buy things instead of services. Meanwhile it is tough on the high street, and so it will stay.