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Christmas 2009 will be far better for retailers than expected says Retail Think Tank

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Christmas 2009 will be far better for retailers than many would have expected following a turbulent year for the retail sector, according to the latest KPMG/Synovate Retail Think Tank (RTT) white paper. ‘Christmas Trading In The Recession: The Challenges And Possible Impacts’ looks at the challenges the retail sector faces during this crucial trading time and shows how many retailers have successfully adjusted their tactics to maximise returns.

The white paper makes eight key predictions for how the Christmas 2009 trading period will play out:

There will be relatively solid trading for retailers on the back of reviving consumer confidence

On the whole, the retail sector has remained remarkably buoyant so far this year, and given Christmas trading has always been better than expected during previous recessions, the RTT expects a solid performance in 2009. “Having had a full year of doom and gloom, retailers and consumers have adjusted to some extent,” says Professor John Dawson. “Last Christmas it was all unknown — and it has turned out not to have been apocalyptic.”

Margin protection is now the key business imperative for retailers

This is more important than last year as less volume needs to be shifted, given the reductions in forecast sales due to the current trading environment. “Given that the economic panic has subsided since last autumn, retailers will be less apt to be drawn into heavy discounting this year: Christmas will be less fraught,” says Mark Teale of CB Richard Ellis.

“Last Christmas, retailers were going into it trying to move stock as quickly as they could, to generate cash and reduce their overall stockholding,” added Richard Lowe of Barclays Retail & Wholesale Sectors. “This year stock is far ‘cleaner’ and they will be managing their margin very carefully.”

Bargain hunters may be disappointed because, unlike Christmas 2008 and January 2009, bumper sales will not be necessary to shift stock

There is likely to be a more targeted approach — general mark-downs will be resisted and promotional activity will be more focused, eg less “25% off everything” and more value-added offers to tempt customers.

Spending and shopping behaviour is likely to be clearly polarised between two groups, the ‘haves’ and the ‘have nots’

For the fortunate, with more disposable income this year, spending will be buoyant.

For others who remain squeezed by lower credit thresholds and the uncertainty of their employment, Christmas spending will be more constrained.

The importance of post-Christmas trading will be even more evident — it is not just about the run up to December 25th

“The post-Christmas trading period is becoming increasingly important, with the extended holiday season now as influential as the weeks preceding Christmas,” says Tim Denison of Synovate. “Changes in society have created a shift away from Christmas itself to become a wider celebration or holiday. Furthermore, we are increasingly time-poor, so we tend to plan ahead less, shop later and believe that the later we leave it, the better the bargains will be.”

Some shoppers will be looking to secure high ticket goods before the expected VAT rate rise on January 1st

Householders will buy high ticket items before VAT rates rise again in the new year; household and electrical retailers should perform significantly better than last year for this reason. The combination of pent up demand and the focus placed on the home at Christmas will provide a boost.

The rise in VAT in January will require retailers getting their pricing and messaging tactics right both before and after the increase

Some retailers will try to encourage early spending with ‘buy now to beat the VAT rise’ marketing messages; others will try to prevent the early peak by committing early to avoid passing on the VAT rise early in the New Year.

A ‘stay-at-home Christmas’, with less holidaying abroad, will also have a favourable effect on Christmas trading

This year will be a stay-at-home Christmas and this will have a favourable effect on Christmas trading. “Last year, despite declining confidence, many consumers had already paid deposits on their regular winter holidays before the worst of the economic situation became apparent and went abroad anyway,” says Helen Dickinson of KPMG. However, the RTT predicts that many will think twice this year, emphasised by the heavy discounting already being seen in the travel sector reflecting the huge overcapacity.

Readers can read the full white paper on the Retail Think Tank website.

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