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PEAK 2021 Consumers face higher prices in run up to Christmas – and plan to spend less

Black Friday is just 100 days away – and counting – are you ready? (Image: Adobe)

The challenging times for retailers look set to continue with warnings that consumers are set to face much higher prices on most items in the run up to Christmas – and that many shoppers already confirm that they are planning to spend less this festive season.

According to the latest British Retail Consortium-NielsenIQ Price Index, while shop price annual deflation eased to 0.4% in October compared to September’s decrease of 0.5%. This is a slower rate of decline than the 12- and 6-month average price decreases of 1.3% and 0.7%, respectively. This is the slowest rate of decline since January 2020 and has led the BRC to warn that prices are set to rise across the coming two months.

This view is backed up by separate research from CRM company SalesForce, which suggests that while digital sales are likely to top $1trn globally, consumers, retailers and suppliers are predicted to face rising costs and decreased inventory due to pressure on the global supply chain.

This rise in prices is also arriving in confluence with declining consumer confidence and a very real threat that Peak spending is set to be well down this season. A survey of more than 2000 UK consumers out today finds that two fifths (42%) say that they plan to spend less on Christmas this year.

While almost half (48%) say their Christmas spend planning is already underway, the research by tech company Ve Global, highlights a need for retailers to rethink how they serve customers, with sales scepticism rife. Seven in 10 (73%) said they believe retailers bump up original prices to make discounted prices look more appealing, indicating that sale events could be doing more harm than good for brands and their customer relationships.

Rising prices and supply chain issues

According to SalesForce, the impact of the pandemic on digital shopping habits is expected to persist. Though the rise in online commerce may not compare to last year’s historic 50% surge, total sales are expected to reach record rates for the upcoming holiday season, growing by around 7% to hit a total of $1.2trn globally.

However, digital commerce growth will be driven by a 20% rise in consumer prices despite fewer global (-2%) holiday orders expected, it warns. Manufacturing capacity, logistics costs and labour shortage have become pressure points in the industry which is likely to cause higher retail prices for merchandise. On top of that, product availability is likely to decrease replacing shipping delays as the season’s biggest spoiler.

This is in line with data from the BRC, which predicts similar headwinds. Helen Dickinson OBE, Chief Executive of the British Retail Consortium, says: “While overall prices remain below their October 2020 levels, this is the third consecutive month of both food and non-food month-on-month rises. October food prices saw the highest rate of year-on-year inflation since November 2020, with fresh food prices rising for the first time in ten months. Meanwhile, in non-food, ongoing global shortages of materials and supply issues with logistics and shipping continue to put upward cost pressures on products such as furniture. It is now clear that the increased costs from labour shortages, supply chain issues and rising commodity prices have started filtering through to the consumer.”

Dickinson continues: “Tight margins mean retailers may not be able to absorb all of these new costs, so prices will continue to rise. A BRC survey showed three in five retailers expect prices to increase in the run up to Christmas, and the ongoing labour shortages are making the situation worse. Retailers continue to do all they can ensure value for money for customers and are looking to work with Government to find a long-term solution to these shortages, otherwise it is the British consumer, who already face higher energy bills this winter, who will suffer the consequences.”

Mike Watkins, Head of Retailer and Business Insight, NielsenIQ, adds: “With food prices slowly increasing we can expect shoppers to start to rebalance basket spend over the next few weeks, particularly with increased concerns about discretionary spend. And with consumer sentiment now more cautious we cannot ignore that availability issues are still top of mind. So consumers will be uncertain about when and where to spend and with Christmas promotions about to kick in, competition will intensify in both food and non-food retailing.“

Looking for bargains online

While prices rises and other economic uncertainties impact prices, many consumers are also reticent to spend this Christmas. It is also changing how they shop, as well as which demographics are likely to be the highest spenders this season.

According to the study by Ve Global, almost half (48%) of consumers say they plan to browse or buy only from the brands they know and trust during the Golden Quarter. When asked what makes a good deal almost three quarters (73%) of consumers said value for money, followed by quality (62%), price (58%) and customer service (23%), indicating that consumers aren’t merely interested in the lowest price, but good quality products and experiences in return. 

Consumers are more likely to think the best deals are found online (44%), in comparison to in-store (14%), though 35% felt there is no difference. When specifically asked about Christmas, more than half (51%) of consumers said they plan to do their shopping online instead of at the shops this year

Jack Wearne, CEO at Ve Global explains: “In the current climate of economic uncertainty and scepticism towards sales, getting consumers to part with their cash this year won’t be as easy. Consumers plan to browse or buy from the brands they trust and have good experiences with. So retailers shouldn’t see it as a mere price war, but an opportunity to really connect with the customer. Though many brands have built up trust and good customer experience in-store, this is under threat with the shift to online. And with the data showing that many consumers plan to do their Christmas shopping online, online retailers must learn how to build trust and deliver the great experiences that are associated with brick-and-mortar stores.”

Young shoppers set to embrace the sales

Younger shoppers are most likely to enjoy the sales and intend to buy during the Golden Quarter, a trend which notably drops by generation. More than half (51%) of 18-24 year olds said they intend to make purchases during Black Friday this year, compared to only a third (32%) of consumers on average. While 56% of consumers said they generally enjoy shopping in the sales, this rises notably for those aged 18-24 (68%), 25-34 (69%) and 35-44 (67%). 

Consumers admitted they browse the sales even if there isn’t anything in particular they want, which rises again significantly from 68% on average to 77% for 18-24 year olds. Almost half (48%) of 18-24 year olds also said they are likely to buy a sale item they see even if they don’t really need it, compared to only 28% of consumers on average. 

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