The World Cup finals are almost upon us, as if we didn't know! The month long tournament kicks off on 9th June and judging by heavy advertising on television, radio and in shop windows, the UK's retailers are attempting to encourage us to dig deep for the lads. The competition dwarfs all other regular summer sporting events including cricket, tennis, golf, horse racing, rowing and sailing by a country mile.
As such the event is clearly an important occasion for the High St. However, as a research note released recently from Capital Economics makes clear, the event is more likely to make a difference to the timing of consumer spending, rather than its overall level.
Although a wide range of retailers are expected to benefit from World Cuprelated spending, it is, inevitably, the electrical retailers who assume centre stage as it is through their products that the tournament can actually be seen and heard. DSG (formerly Dixons) reported that sales of flat screen televisions doubled in the six months to the end of April. Whilst falling product prices proved a contributory factor, the Group stated that the World Cup was indeed a significant factor in driving purchases.
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World Cup and retail sales: a game of two halves?
What seems clear is that many consumers have brought forward the timing of such purchases in order to have sufficient time to nail the thing to the wall before the competition starts. It might be natural to assume that sales of products are likely to fall as the tournament starts and drop off sharply in the months thereafter (we note that Sky has reported shortages of high definition products and so some would be viewers are going to be forced, like the writer, to watch less clearly defined pictures beamed down the cathode ray tube - still few will complain if England actually win!).
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World Cup and retail sales: over the moon or sick as a parrot?
Equally, investors should be aware that, were it not for World Cup-related television set purchases, consumers' cash would probably have been spent elsewhere. Thus, in the round, spending on TVs is taking spending away from other areas. The same applies to other areas of the High St. Replica shirt sales may detract from spending on other clothing items whilst many may holiday in Germany this summer, taking spending away from other destinations. Betting on matches may well result in reduced spending on lottery tickets, while pubs and supermarkets may well receive a boost from beer swilling fans at the expense of eating out and going to other entertainment, cinemas etc.
World Cup and retail sales: the High Street needs an England victory
In conclusion we suspect that the World Cup will make a big difference in terms of what people chose to purchase, but not to overall levels of spending. The only caveat to this, relatively downbeat take on the competition's impact on spending (and by extension, the economy), is if the England team were actually to win the Cup.
It's been a long time, as we're all constantly reminded and in a mind-bending act of hubris, plans are already being hatched for a day of national (even Scottish!) rejoicing more prosaically. We also conclude that the World Cup will make a difference to the timing of purchases and thus muddy trends in retail sales over the next few months (and comparative data next year too).
As far as investing in the stocks of businesses regarding as benefiting from World Cup-related spending, it is our view that we're already deep into extra time with a penalty shoot out looming. Given the English national team's far from excellent track record from twelve yards out might it not be a better idea to sell into strength?
For much of the past forty years English football supporters have learnt the hard way that it is often better to travel hopefully than to arrive. Let's hope that Rooney, Ferdinand, Beckham etc focus on the job in hand and consign history to the waste paper basket. We'll do the worrying about the economy for them!
By Jeremy Batstone, Director of Private Client Research at Charles Stanley
