This week heralds the beginning of the festive shopping season in the form of Black Friday – a date which has become the high point of the year for many retailers in the UK – and a chance to look ahead to what we should expect in terms of consumer spending over the coming weeks.
It would be fair to say that this year has already been a rollercoaster for the retail sector when it comes to consumer spending habits. On the high street there have certainly been more dips than online, however overall the tale is of declining growth amid a more uncertain economic outlook.
Working with our research partners at IHS Markit, we have now incorporated Visa data with other economic data sets to come up with a prediction for UK Christmas 2017 spending.
UK consumer spending to drop for the first time in half a decade
Overall we expect the first yearly decline in UK consumer spending across November and December since 2012. A period of higher inflation and rising interest rates, coupled with wage growth that is struggling to keep up, is likely to weigh on consumer spending this Christmas. We see this translating into an overall drop in spending of 0.1%.
While this decline should be set in context of a record year in 2016, with Black Friday and Cyber Monday feeding into a bumper spending season, it does reflect challenges ahead for industries reliant on consumer spending.
Online shopping continues to grow
Despite this rather downbeat picture, we predict that online (including mobile) shopping will continue its upward trajectory from earlier in the year. This winter we anticipate that approximately £2 in every £5 will be spent online.
Annual e-commerce sales have been rising since 2012, driven by smartphone adoption and the ironing out of points of friction for consumers through mobile-optimised websites and apps, as well as one-click payment services – such as our own Visa Checkout – which eliminate the need to enter delivery and billing information for repeat purchases. In a consumer survey we conducted this month, almost half of respondents said they would buy presents on their mobile phones or tablets this Christmas.
In contrast to online spending, face-to-face spending is expected to drop by 2.1% over the November/December period, the sharpest dip in five years. Despite the expectation of healthy e-commerce growth, it’s worth noting that even these promising figures represent a sharp contraction in the rapid rate of online spending growth shown last year, when it hit 8.9% during the Christmas trading season.
The experience economy cashes in domestically
Over the past couple of years, we’ve noted a particular rise in expenditure relating to the ‘experience economy’ and anticipate that consumers will continue to spend on going out to eat, drink or see shows and exhibitions during this festive period. This is reflected by the more resilient hospitality and recreation sectors that we track in our research.
We expect spending in the hotels and restaurants category will see the greatest growth over the Christmas period, at 3.4%. By contrast, spending on clothing and footwear is expected to drop 0.5%. Interestingly, this surge in the experience economy is one of the areas that has been most visibly affected by macroeconomic conditions this year. The dip in sterling means the strong performance of this sector is specific to the UK, with a large 4.5% dip in transport and communication spending likely being driven by an expected fall in families booking Christmas getaways.
At this stage, these are only predictions. Given the adverse direction of consumer spending over recent months, the data coming out over the next few weeks should be enlightening. We’ll be digging into the numbers over the next couple of months as part of our regular monthly Consumer Spending Index, and will be keeping a close eye on whether our forecasts become reality.