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Shoppers splash out in the January sales but economic uncertainty hits consumer confidence

Mon Feb 08 00:01:00 EST 2016

  • Consumer spending rose 3.8 per cent in January, continuing the strong run of growth in 2015, as merchants slashed prices during the traditional sale period
  • Spending at department stores – typically big discounters at the start of the year – and furniture shops recorded the strongest increase on record, up 12.6 per cent and 11.3 per cent respectively
  • Marked drop recorded in consumer confidence levels since December, with confidence in personal finances plummeting from 34 per cent to 24 per cent and three in ten feel less confident in the UK economy now than at the start of the year
  • Research indicates consumers will part with their cash, but due to entrenched behaviours from the recession, they will only do so when there’s real value-for-money  – throwing down a challenge to retailers in 2016

Consumers have been treating the January blues with a strong dose of retail therapy, increasing spending across all major categories from clothing to household. However, behind the strong growth lies a deterioration in consumer confidence, suggesting uncertainty has prompted some shoppers to grab their bargains before tightening the purse strings.

Consumer spending grew 3.8 per cent year-on-year in January, according to the latest data from Barclaycard, which processes nearly half of all credit and debit card transactions in the UK. The increase continues the strong run of growth in 2015 as merchants slashed prices during the traditional discount period.

Shoppers splashed out on major purchases, with spending in department stores and furniture shops both recording their highest increase since records began, growing 12.6 per cent and 11.3 per cent respectively. Consumers also purchased winter wear as the weather finally turned colder which, coupled with the January sales, resulted in a 6.7 per cent uptick on clothing spend. 

The trend to spend comes despite a string of negative economic news – including a slowdown in China, record-low commodity prices and weaker prospects of growth at home – which has affected consumer confidence. Barclaycard research shows that consumer sentiment has fallen sharply this year – with the proportion of people who expect the global economy to deteriorate over the next three months surging from two in ten (22 per cent) to four in ten (42 per cent). 

Similarly, three in ten (30 per cent) consumers confirmed that they are feeling less confident about the UK economy than they were at the beginning of the year. Of those, two thirds (68 per cent) say that media coverage of the downturn has contributed to their gloomy outlook.

As a result, consumers are more pessimistic about their own situation. Those who feel more confident about their personal finances now compared to a few months ago has dropped 10 percentage points from December to January (34 per cent to 24 per cent) and just 45 per cent of people feel confident in their job security, down from 52 per cent in December and the lowest since our consumer confidence research began. 

The findings suggest 2016 will be a tough year for retailers as consumer caution, first adopted during the recession, shows no signs of fading. Where a third of consumers (34 per cent) expected to ‘splash out on at least one major item’ in 2016 when asked in December, that figure has plummeted to under a quarter (23 per cent) in January. 

Despite concerns over the economy, results show that some shoppers will find a way to purchase the ‘nice-to-haves’ – regardless of how the economy fares in 2016. Four in ten consumers (40 per cent) still expect to treat themselves or their family this year, suggesting they will part with their money, but only in the right conditions. This sets retailers the challenge of convincing consumers that their products and services are the ones that are worth it, even against the backdrop of a stalling global economy.  

 

Paul Lockstone, Managing Director at Barclaycard said: 

“January spending provided a much-needed boost to retail sales, though our data suggests that merchants took a hit as they grappled for market share. Consumers took advantage of the steep discounts to buy big-ticket items such as furniture  or white goods, and it’ll be interesting to see if February spending is much more muted as a result of this ‘stock-up’ mentality.

“It seems the downbeat news about the economy is taking a toll on consumer sentiment, however, with many shoppers reporting that they are less confident about the economy and, as a result, about their own financial prospects. Consumers will continue to place value for money front and centre when making purchasing decisions – they are willing to spend, but on their own terms.”

 

 

Y/Y Spend growth by category

Overall

Online

In-store

Clothing

6.7%

16.0%

2.9%

     Family Clothing

6.0%

14.7%

2.7%

     Shoe Shops

5.0%

11.5%

3.0%

     Women’s Clothing

4.6%

15.1%

-0.6%

     Men’s Clothing

19.6%

23.9%

17.8%

Restaurants

13.5%

30.4%

12.2%

Books, Newspapers & Magazines

22.9%

32.7%

-0.9%

Auto Parts & Accessories

0.0%

6.1%

-1.6%

Cinema, Theatre & Dance

7.5%

18.7%

-7.0%

Public Houses

12.5%

132.8%

11.6%

Department Stores

12.6%

20.2%

10.7%

DIY Stores

1.3%

12.4%

0.2%

Travel Agents

3.0%

11.4%

-4.3%

Airlines

3.6%

6.7%

-9.2%

Supermarkets

-0.4%

8.4%

-1.0%

Petrol

38.2%

115.0%

-12.2%

Gambling

-5.1%

-10.6%

-5.1%

Overall

3.8%

16.3%

-0.1%

Average Transaction Value

Overall

-4.1%

Clothing

1.0%

Airlines

-5.2%

Restaurants

-4.8%

Supermarkets

-4.7%

Petrol

-6.4%

Spend Share

Clothing

31.2%

Travel Agents

50.8%

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