The consumer spending outlook for 2015
February 13, 2015
As my colleague Lisa Hooker has already discussed, last Christmas non-grocery retailers had their best trading performance since before the recession. What factors led to this, and how sustainable is this performance?
UK consumers better off than at any point since the last recession
While GfK’s widely reported consumer confidence index declined through the second half of 2014, this was predominantly due to public concern about the general economic situation of the country, rather than their own personal finances. Regarding their own financial situation over the previous 12 months, consumers were more positive than they had been at any point since before the Lehman crisis.
That’s not a surprise, given that the Asda Income Tracker measured household disposable income after taxes, bills and cost of living at £180 per week in December – its highest level in the past five years, and almost 10% higher than December 2013. The combination of employment growth, real earnings growth, continued low interest rates and grocery and fuel price deflation has helped families feel richer and have more to spend than at any point since the last recession.
This in turn impacted the performance of some retailers that Lisa Hooker highlighted, in particular the growth in sales at department stores and home/electricals retailers.
For how long will the good times roll?
So what’s the outlook for 2015? Let’s turn to our own regular poll of public opinion. Every 3-4 months, we ask around 2,000 consumers whether they think they will better or worse off over the coming year, after taxes, bills and cost of living.
Our latest poll in January 2015 shows that, on balance, most UK consumers believe they will be slightly worse off in 12 months’ time. That’s fairly normal though, and not a surprise: younger people typically expect to be better off (reflecting entering employment, career progression, increasing salaries and so forth), while older people expect to be worse off (as they start to have a family, their careers plateau, and finally they exit the workplace and retire).
What’s more interesting is the trend over time:
- The balance of opinion on future economic prospects is at its most positive since PwC started our survey in April 2008 – almost 50 percentage points better than directly after the Lehman crisis in October 2008, and 40 percentage points better than its worst point in this decade (in May 2012)
- Compared to January 2014, consumer sentiment has improved across every single age group and social group; and most of all amongst the “C2” social grade. In marketing speak, the C2 group represents the “skilled working class”, based on the occupation of the chief income earner in the household – so that’s plumbers, taxi drivers, shop workers, call centre workers – or “Joe Average”, you might say
So, not only have retailers and other consumer-facing businesses not had it so good in a while, but their customers seem to be more confident about their future spending outlook than at any point in the past seven years. And, at least in the short term, there doesn’t seem to be much risk of inflation reversing dramatically or interest rates rising.
Clouds on the horizon?
While the short term prognosis is undoubtedly positive, how much better can the economic environment get for the average consumer? How low can interest rates and oil prices go?
We’ll leave the forecasts to our economics colleagues, but it’s interesting to hear what consumers think they might do if they were forced to cut back on their spending. Consumers told us that going out (44%) and eating out (44%) would be amongst their top 3 areas for spending cutbacks – both areas were cited by over 10% more people than the next most common areas (clothing 32% and holiday 31%).
That’s not to say that consumers will stop going out but, if their disposable income is squeezed for any reason, then it would be relatively easy for them to go out maybe one less time a month. This makes sense, given that going out has been one of the biggest beneficiaries of our increased discretionary income – for example, the Coffer Peach tracker showed like-for-like sales growth of 4.7% for restaurant chains over Christmas (compared with the 0.4% decline in British Retail Consortium like-for-like sales over the same period).
Staying relevant to the consumer in 2015
But retailers too will need to keep on their toes if they are to sustain the same levels of performance they experienced last year. If last Christmas’ sales increases were driven by positive consumer sentiment and increased disposable income, then how will retailers ensure that their customers continue spending in 2015? Particularly if the economic environment becomes less favourable than it is today. Even more reason to re-look at the recommendations Lisa Hooker shared previously.
What did you make of retailers’ trading performance in 2014? How do you think the consumer will fare in 2015? Share your comments below or contact me to tell me what you think.