Dec 21 2020
According to Retail Search, UK customers spent £78.6 billion on retail items over the six weeks through Christmas day in 2019, up 2.2% on the previous year. This figure indicates that the six-week period leading up to Christmas is crucial for retailers, especially after the COVID-19 (coronavirus) pandemic decimated demand in the current year. The retail sector has been profoundly affected by the pandemic with lockdown measures leading to the closure of non-essential stores in late March 2020 until June, and for a further four weeks in England during the second lockdown from 5 November to 2 December. Demonstrating how these measures have hit the sector, revenue in the Clothing Retailing industry is forecast to fall by 27.5% over 2020-21. One company in this industry particularly affected is the Arcadia Group, which owns Topshop, Burton and Dorothy Perkins, and fell into administration in November 2020 due to forced closures because of the pandemic.
Consumer behaviour has shifted due to lockdown measures and the rapid rise of online shopping. Online spending in expected to outpace in-store spending over the current year, with IBISWorld expecting total online expenditure expected to rise by 47.9% in 2020-21. Despite the introduction of local lockdown measures, early Christmas shopping and discounting by stores contributed to a 1.2% increase in UK retail sales in October, according to the Office for National Statistics, although they then fell back by 3.8% in the following month as England entered into a four-week lockdown. A large proportion of retailers have adapted to new operating conditions and captured a share of rising online expenditure.
The number of COVID-19 infections in the United Kingdom is still high and further lockdown measures have reduced expenditure on leisure activities. As a result, some spending has been transferred from leisure activities to the retail sector, albeit through online stores. A sharp fall in the number of international flights and government travel advice that led to holidays being cancelled resulted in customers spending more on retail items, a trend that is expected to continue through the festive period. Concerns over further lockdown restrictions led to a significant number of customers bringing forward purchases to early December, with many retailers reporting a surge in demand for Christmas trees, turkeys, and decorations. UK growers usually sell eight million trees each year, a figure expected to reach over 10 million this year. On 1 December, growers reported that wholesale business to retailers was already 24% higher than at the same time in 2019.
According to Retail Times, over a four-day period between 2 and 5 December, after lockdown was lifted, high-street footfall was 64.5% higher than the comparative period in the previous year. Footfall in retail parks also increased by 26.2% over this period. However, footfall is not expected to have matched expenditure as customers aim to spend less and save more. As a result, expenditure during the Christmas period is expected to fall by £9.7 billion, according to Retail Research. Additionally, over 30% of Christmas spending is anticipated to be conducted through e-commerce stores, compared with just over 10% in 2019. This is mainly because of concerns over further restrictions and reduced disposable incomes. Spending per head is forecast to fall in 2020 compared with the previous year, with Londoners estimated to spend the most, at £1,538 per person, followed by residents in the South East at £1,274 per person.
Retailers that operate bricks-and-mortar stores have had to adjust their operations in order to attract customers over the festive period. Operators must develop strategies to ensure that customers shop locally; local and family-owned stores must provide customers with a shopping experience, offer unique promotions and assure customers that is safe to return to physical shopping. Retail stores are expected to have benefited from government plans to relax trading hours and allow retail stores to trade round the clock in December and January. However, the introduction of Tier 4 restrictions in London and the South East and the announcement of a national lockdown in Wales from 20 December has once again resulted in the closure of non-essential retail outlets, which is expected to limit spending in the days remaining before Christmas. Overall, Christmas retail spending is forecast to decline by 12% in the current year.
As the COVID-19 vaccine is gradually administered to the UK population, customers are expected to return to retail stores in 2021, leading to an increase in spending. However, concerns over the impact of a no-deal Brexit will lead to some customers being cautious about spending in the short term. Recently, the Prime Minister, Boris Johnson, stated that a no-deal Brexit seemed likely, which could encourage consumers to spend less over the Christmas period due to concerns over the state of the economy following the end of the transition period. Overall, the retail sector was one of the main casualties of the pandemic and although the sector is expected to have received a short-term boost from Christmas spending, further shocks to the economy due to a no-deal Brexit could compound the retail sector’s problems in the near future.