Retailers prepare for cautious Christmas as a chill settles on consumers

Shoppers may be preparing to swoop for Black Friday bargains this week, but retailers are expecting a “cautious Christmas”, with households concerned about high energy and housing costs, as well as the potential impact of the recent budget.

Trade has been slow in the run-up to the US-inspired promotional spree, which is a week later than last year, as shoppers held off buying presents in the hope they can snap up a bargain.

Figures from the e-commerce trade body IMRG, which tracks the performance of more than 200 retailers who trade online, indicate that sales continued to fall this month after a disappointing October – down 11.7% for the week from 10 November, the worst weekly performance of the year so far.

Andy Mulcahy, insight director at IMRG, says the latest figures mean online sales are down 2.5% so far this year and he fears there will be no dramatic turnaround in the festive season. Annual sales this year will be down at least 2%, he says. “Not a good year.”

Sales of clothing and gifts are performing particularly badly again after a tricky 2023. Concerns about clothing sales were heightened last week as JD Sports warned that annual profits would be at the lower end of expectations, partly because of the mild October weather, as well as heavy promotional competition.

The online fashion specialists Asos and Boohoo are also under pressure as sales continue to slide against cut-price challengers Shein and Primark.

It is not just an online problem. On Friday, the Office for National Statistics (ONS) said retail sales had fallen by 0.7% month on month in October, indicating a poor start to the “golden quarter” for retailers before Christmas. Even food stores and supermarkets – where trading has been resilient this year as households switch to cooking more at home to save cash – saw sales fall 0.6%.

Retailers have said the rise in national insurance contributions announced in last month’s budget will add £7bn to annual costs, leading to job cuts and price rises.

Diane Wehrle, the chief executive of the retail analyst Rendle Intelligence and Insights, says: “The budget compounded already depleting consumer confidence and, for many, this will be a cautious Christmas. Shoppers will seek out price over in-store festive pageantry.”

She expects high street sales to rise just 0.5% and online sales growth to be 4% this Christmas as cost-conscious consumers shop around.

However, the rising cost of returns and delivery may make high streets a more attractive proposition for some.

Doug Putman, the boss of the entertainment retail chain HMV, says there is likely to be a divide among retailers selling goods that consumers are continuing to see as important and those dropping off the Christmas list.

He said sales of vinyl and CDs were doing well, but toys were struggling. Beauty is booming but expensive furniture purchases are on hold.

The overall picture may also not be as gloomy as it first appears. For many, Black Friday is seen as the starting gun for Christmas shopping and the October numbers were hit by factors including the timing of the discount day and half-term.

Lisa Hooker, head of consumer markets at the advisory firm PwC, says: “What gives us confidence … is that with no major overnight personal tax rises, the budget largely did not affect consumer spending power in the short term.”

PwC also found that shoppers were planning to spend more on Black Friday because it falls after payday this year, and because they have more disposable income available as pay has caught up with inflation.

The arrival of a truly cold snap last week may also drive sales of coats and boots this month in a way not seen in last year’s mild winter.

Nationwide has predicted consumers will spend more than £336m on Black Friday, a 12% rise. A late rush could also be prompted by Christmas Day falling on a Wednesday, creating a “super Saturday” on 21 December as shoppers snap up gifts before travelling to their festive destination.

Putman says he feels optimistic about Christmas but things might get tougher in the new year “as everything from the budget comes in”.

“Every country we are in, there is fragile consumer confidence,” the Canadian retail billionaire says. “So we need politicians to make good decisions.”