Tuesday, March 21, 2023

What is the consumer’s nightmare? Britons still love to travel and shop

Related posts


On a cold Saturday in January, London’s Oxford Street was alight. Queues at Primark snaked around the store, Zara ran out of wide-leg jeans and Charlotte Tilbury’s cosmetics counters were raided. It was a similar scene a week later at the Westfield shopping center in Stratford, East London, where the aisles were so crowded it was difficult to move.

And it wasn’t just tourist spending. Brits have also been out shopping and dining.

The scenes were contrary to predictions – including my own – that after a final Christmas rush, consumers would tighten their purse strings, making for a miserable period for retailers and restaurants. Indeed, on Tuesday, the British Retail Consortium and KPMG said total UK retail sales rose by just 4.2% year-on-year in January, about half the pace of December.

But January is always a weak month. What if the rest of the year isn’t so bad?

For starters, inflation, one of the main components of the cost of living crisis, may be peaking. European gas prices have fallen more than 20% so far this year thanks to alternative supplies to Russian shipments, as well as energy-saving efforts and a warm winter.

While food inflation hit a record 16.7% in January, according to data provider Kantar, Ken Murphy, chief executive of Tesco Plc, said he hoped price rises would start to moderate by mid-year. A United Nations index of food commodity costs fell for the tenth month in a row in January. The gauge has fallen about 18% from a record last March, when Russia’s invasion of Ukraine disrupted crop flows from the main supplier.

It will take time for this to filter into the weekly shop. But look out for more special offers from big brand manufacturers, such as Nestle SA, as they try to boost sales.

And it is not only food prices that may soon stabilize. Next Plc estimates that prices for its clothing and home furnishings will rise by 6% in the autumn, following current increases of 8% for sweaters and sofas in stores. While the depreciation of sterling will make clothing more expensive, this is being offset by falling freight rates and factories eager for orders. If sterling’s recovery from lows last autumn continues and the retailer is able to negotiate competitive deals with suppliers, then rises could be even lower this time next year.

The better outlook is not limited to inflation either. Mortgage rates have already fallen from November’s highs. It looks increasingly likely that the upward trajectory for interest rates is coming to an end. The Bank of England is expected to hike again at its next meeting on March 23, but money markets now believe this will be the final move for the year, and only by 25 basis points.

Meanwhile, wages are rising even as inflation outpaces prices. If pay packets continue to expand – the National Living Wage will rise by almost 10% in April – and inflation eases, this should ease some of the strain on household budgets. Add in strong employment and housing prices that are falling but not collapsing — two factors that significantly influence consumer behavior — and there’s good reason to think demand should continue.

Of course, we still face a slide into recession, although the Bank of England now expects it to be shallower. Britons – especially the wealthiest – lost out on the tax cuts that were dangled before them last autumn, although many still have savings. But people having to pay for private hip and knee replacements because of long NHS waiting lists is another invisible drag on spending power.

There is also the risk that the labor market will deteriorate more than expected or that inflation will be more stable. The impact from China’s reopening is the next factor to watch. But if these risks can be avoided, the doomsday scenario that many investors have considered may not come to pass. Indeed, the retailer’s share prices have soared this year on such hope.

However, greater comfort will not find its way into stores and leisure businesses.

Travel is poised to remain a consumer priority. Ryanair Holdings Plc said recently that bookings were holding up, raising prices. This is not just another wrinkle in the story of inflation; it can also mean that any extra household cash is poured into vacations as opposed to a new car or home renovation. When I was shopping in Stratford, I saw a few people browsing sofas in the John Lewis furniture department.

Clothing can also suffer. Fashion has had its best run for years as Brits swapped their Covid jumpers for suits and smart dresses to get back to work and events. Will they settle for the same outfits this year?

Even with these caveats, the consumer backdrop is looking more promising than it did just a few weeks ago. It’s still a long way off, but Christmas 2023 might not turn out to be such a nightmare after all.

More from Bloomberg Opinion:

• Liz Truss may have the last laugh yet: Martin Ivens

• Can this billionaire run Lotus better than Richard Gere?: Chris Bryant

• France’s old workers need a revolution: Lionel Laurent

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer goods and retail industry. Previously, she was a reporter for the Financial Times.

More stories like this are available at bloomberg.com/opinion

Source link

Next Post

Leave a Reply

Your email address will not be published. Required fields are marked *




Welcome Back!

Login to your account below

Retrieve your password

Please enter your username or email address to reset your password.