A white or a blue Christmas?

It is that time of the year again, Christmas is approaching, and unfortunately and rather inconveniently, so is another recession….

We are greeted every morning with waves of depressing economic news and UK consumer confidence is said to have dropped to a record low. At the same time, we are now heading toward a period where most people spend more at the shops than at any other time.

Given that pressure on household budgets, the key question is whether cash-strapped consumers are going to loosen their purse strings. Is Christmas going to provide some positive seasonal cheer for the government and the retail sector?

It does not appear so. A significant proportion will drop their Christmas shopping spend due to a fear of their financial future.

Our latest research confirms that Christmas shopping is likely to fall victim to household belt tightening.

When interviewed in November, a third of shoppers (35%) mention that they would spend less than they did last year at Christmas. And those who claim they would drop spending, say that they would do so by an average of 31% this year.

Another sign that consumers are becoming more prudent is the fact that the incidence and proportion of spend on credit will remain stagnant versus last year. So consumers are not going to use more credit to support their spends. Though pester power is likely to work, as those with children are more likely to use credit than those without.

At the very least this indicates that consumers are going to become cautious about spending at Christmas. The main reason is the double whammy of income being depressed with the cost of living rising at the same time.

When asked why they would be cutting down - 71% said “financially times are harder this year than last” and 67% mentioned that “the cost of things like fuel and food are rising”. The younger generation feel that putting money into savings is an important reason why they will spend less on Christmas this year (27%), reflecting the change towards frugality.

Very tellingly, 10% of households said someone in their home had become unemployed or their income was diminished is some way in the past year.

This Christmas you may know who your real friends are.

Don’t be surprised if there is more space under the Christmas tree than usual, as nearly 1 in 5 of the shoppers interviewed (17%) mentioned that they would spend less on their shopping list by “buying for fewer friends and relatives”.

The proportion of people recycling gifts will be significant - 12% will send other people gifts that they have received and do not want. There will also be a rise in ‘home made gifts’ – 16% will send home made gifts this Christmas. Oddly, enthusiasm for making gifts seems to be biased towards the higher social classes.

Moreover, promotions are going to be popular, with 46% of those spending less this year saying that they would do so by buying only gifts on promotion. Younger people (25-34 year olds) are three times more likely to use retailer reward points to buy gifts in order to save money than the older age group.

Online shopping will continue to be prominent but won’t rise as fast as predicted.

74% will buy some gifts online, not much higher than last year, but this matches the proportion buying from the high street (75%). The share of shopping from the high street continues to drop as well, but marginally this year.

The fact that consumers do not want to increase their spending on credit cards is potentially one of the reasons that online shopping looks set to grow less than we may expect this Christmas.

Christmas shopping in the autumn: the early bird catches the worm.

It is said that the last week of November is when the Christmas shopping really starts, not true anymore. If retailers have just started their Christmas promotions or have waited until after Halloween to start stocking Christmas products, then they may have missed a lot of people on the boat.

73% had already started their Christmas shopping by early November and incredibly 30% started prior to September. Only 1 in 5 shoppers will leave their Christmas shopping until December this year. This is particularly worrying given the indications of lower spending in this period.

The primary driver for this change in behaviour is cost efficiency. 29% wanted to spread the costs over a period of time rather than take the hit in just one month. Another third were driven by promotions which were attractive enough to start shopping for presents already.

Clearly the last minute shopping rush is going to be less rushed than usual!

Christmas is a time when the temptation to shop should be at its highest. If this is the situation at Christmas, it is predictive of a bleak 2012.

The Christmas shopping season brought news of the Arcadia group closing more than 250 stores. We may have to brace ourselves for some more of the same in 2012.