Have consumers lost 'the urge to splurge'?

Deck the halls with boughs of holly, "tis the season to be well, pretty damn miserable, to judge by some of the long faces in the British retailing industry", says Martin Dickson in the FT. November turns out to have been a lousy sales month, hit by a combination of bad weather - first "too warm to shop for winter clothes then too wet even to leave home" - and one-off events, such as the rugby. Clothing and footwear have been hit hard, some chains have already started "aggressive discounting", consumer confidence fell in the wake of last month's interest-rate rise and the recent profit warning from Austin Reed has confirmed that trading conditions have been tough. It looks like the clothes retailers' "cry of pain" is unlikely to be the last this season: we may have "lost the urge to splurge".

That's hardly a surprise, says Heather Connon in The Observer. After three years of "bumper retail sales", a slowdown in consumer spending was inevitable. The question is just how far and how fast. The answer from the optimists ("most of them retailing executives") is that sales growth is simply going to slow to around 2% from the 5-7% we've seen over the last few years. The pessimists ("most of them economic forecasters") think that, given the fall in take-home pay this year as a result of tax rises, things could be rather worse. The last time pay declined was back in 1995 and in 1996 retail sales did not grow at all. This slowdown in sales isn't just for Christmas: it could carry on long after "the Christmas cards have been sent to the recycling bin".

And if we do shop this season, are we really going to do it in person? asks Jonathan Prynn in the Evening Standard. Slogging around the shops is "one of the least-loved rituals of Christmas" and we don't have to do it any more. Witness the rise and rise of the online retailers. The Internet Retailing Association, IMRG, has reported a 60% jump in November sales to £1.6bn and is forecasting Christmas sales of £3.3bn, to round off e-tailing's best-ever year. Expect this transfer of business from the high street to the internet to continue, says Robert Cole in The Times. Growing confidence in credit-card security and increasing offers of flexibility in delivery and exchange terms have made internet shopping easy and efficient: the shops may continue to hope that consumers will pour through their doors, but they are hoping in vain.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Maybe, says Lea Patterson in The Times, but we must be careful not to write off the season too early. Forecasts for Christmas trading are "notoriously unreliable" - the true picture won't emerge until early next year. And customers are getting more and more canny. They know there'll be bargains at the last minute and they are more than willing to wait to buy. According to a survey by Deloitte & Touche, 35% of people planned to start their Christmas shopping before November, down from 40% last year, and a particularly mean one-in-50 of us intends to wait until the January sales to buy. Not all retailers seem willing to accept this turn of events, says Matthew Goodman in The Sunday Times. Next and John Lewis are among those who are refusing to cut prices and are sticking to their sales policies. That's probably not a good idea this year - odds are they will reach "a point of no return" where they realise "they are not going to have enough time to claw back the sales they have already lost this season".

It's the same in the US, where after several years of heavy discounting, retailers are claiming to have cut inventories to protect margins and to be organising mark downs in a more "strategically planned" way, says Businessweek. So instead of across-the-board discounts they have, for example, "door-busters" - where they cut the prices of a few popular items for a few hours only. This supposedly works well for the likes of Wal-Mart, but given that savvy consumers have cottoned on and tend to leave with just the door-buster, how long will it be before retailers lose their nerve and "pull the clearance trigger to get shoppers in the door"? So much for seasonal cheer.