Retailers brace for cutback Christmas

Major retailers fear this Christmas could be the worst in at least a decade as shoppers cut spending while the costs of doing business show no sign of abating, squeezing profit margins.

Despite enduring two Christmases under social restrictions linked to the Covid-19 pandemic, households are looking to spend less this festive season, both on gifts and socialising, as double-digit inflation dents their purchasing power.

Consumer confidence is also at or close to the gloomiest on record as soaring energy bills add to the spiralling cost of living.

"Today, it is the European consumer I am most worried about," Dirk Van de Put, chief executive of Cadbury chocolate maker Mondelez International, said last week.

In the UK, a raft of surveys indicate half or more Britons plan to spend less this Christmas. Should September's sharp drop in retail sales be repeated in December, it would be the worst outcome since comparable annual records began in 1989.

"Retailers are facing possibly their toughest festive season in a decade as shoppers look to trade down, search out bargains and purchase less to meet the economic challenges ahead," Paul Martin, KPMG's head of retail said.

Official data showed UK retail sales volumes, excluding fuel, dropped 6.2 per cent year on year in September. The biggest December falls - of 1.9 per cent - were recorded in 2010 and 1991, with a lesser drop of 1.1 per cent in 2008 during the global financial crisis.

Several UK retailers - including food and clothing group Marks & Spencer, supermarket Sainsbury's and fashion retailer Primark - have said Britons are trying to spread the cost of Christmas, buying gifts early to avoid a squeeze in December.

They are also trading down more to discounters, with data from consultants McKinsey showing the trend is particularly evident in household products, frozen foods and snacks and confectionary. Discounters Aldi and Lidl are currently Britain's fastest growing food retailers.

Mondelez' Van de Put said European shoppers are buying Mondelez sweets like Milka chocolate at discount shops more often but he still expects holiday spending on chocolate - even if it's less expensive - to be strong.

"In times of anxiety and worry, trying to do something for your loved ones, for your kids, buying them nice seasonal chocolates or biscuits is a very normal thing to do," he said.

While Christmas 2022 looks extremely tough, market conditions in the 2023-24 financial year look set to be even worse as any savings consumers built up during the pandemic are wiped out and retailers face the most marked rise in the cost of doing business for many years.