UK: The Retail Review - Christmas cheer ... or Christmas fear? Part Two

Christmas Retail Survey 2005
Last Updated: 23 November 2005
Most Read Contributor in UK, August 2017

To read the first part of this article please click on the Previous Page link at the bottom of the page

Industry analysis

By Robin Knight
Head of Business Development, Consumer Business

Discounting the cost of Christmas ... and beyond

In October this year, the Times carried an article entitled "The Bargain Hunters". The article focused on the rise of the discount phenomenon within UK retail and was subtitled "More and more people are shopping at discount stores. Are the British losing their snobbery?" It is certainly the case that discount retail chains are becoming more and more visible. Discount food retailers such as Aldi, Lidl and Netto are enjoying strong growth in the UK whilst in the apparel sector Peacocks, TK Maxx, Primark and others have made significant inroads alongside the own label fashion brands of the established grocers such as George at Asda and Cherokee at Tesco – but is this assertion correct, and is there really a major shift underway in buying attitudes amongst UK consumers?

In our view the answer would be no; quite simply because discounting is in no way a recent phenomenon. The UK public has always had an eye for a bargain and in recent years this has come more and more to the fore. How else do we explain the phenomenon of the car-boot sale which is replicated in thousands of fields and car parks across the land every weekend, or that in the UK the eBay site receives 11 million hits per month? For as long as most of us can remember we’ve been watching television reports showing hardy individuals camping outside department stores to ensure they get the best bargains in the January sales. The traditional Boxing Day pastime of spending the day at home with family and friends is being replaced for many by sporting activity or by an annual pilgrimage to the nearest retail park to get the earliest reductions as each year the Christmas sales seem to start earlier and go on for longer. We are indeed a nation of bargain hunters.

So consumers leaning towards discount retail is not a new phenomenon but in recent years the scale of opportunity to bargain hunt has increased dramatically and our appetite with it. The reality of what is happening is that canny operators are now tapping into this trait and exploiting it to good effect. In the last few years retailers have been locked in ever fiercer competition for their slice of our disposable income, or "share of wallet", not only with each other but also with new rivals from the travel, hospitality, wellbeing, leisure and restaurant sectors amongst others. Faced with more and more to spend on, consumers have in many cases looked to make their hard earned money go further. In addition to this, we are now seeing a downturn in consumer confidence and retail over capacity and this means that like for like sales are in decline. These factors combined suggest that the discounters have a more fertile environment than ever before in which to grow.

In the food sector in particular the aforementioned chains fro m Northern Europe have made significant inroads and all have aggressive expansion plans for the UK. Having enjoyed years of success on the continent and taken substantial market share from the more traditional and longer established grocery retailers they now see the UK as one of their next major targets for growth. The success these so called "Hard Discount" formats have enjoyed should not be underestimated. In Germany, some analysts put the discounters share of the total grocery market as high as 40%. In France, some major grocery retailers are taking steps to launch new trading fascias which follow the hard discount format as they believe that even cutting prices in existing stores will not dissuade the buying public from their perception that established retail brands are simply more expensive than the discounters.

The UK will however, be a much tougher nut to crack. Whilst these businesses have shown considerable year on year growth since they came to the UK they are still minor players in terms of overall market share, and reaching the heights achieved in continental Europe is a tall ord e r. The primary reason behind this is that the UK grocery industry has a much greater focus on own label goods than most other countries. Our most successful grocers have been particularly adept at exploiting own label and now the majority offer their own low cost ranges, in effect creating an in house discount offering. That said, the newcomers continue to grow and their shrewd approach to buying will ensure that they continue to grow and attract more and more customers.

As time passes the UK buying public are slowly starting to appreciate that convenience and quality underpins the location and buying decisions of traditional retailers. Discount retailers home markets simply do not allow price to become the primary consideration over the quality of the product and it is this consumer acceptance which will fuel sustainable UK growth as discounters increasingly become complementary shopping destinations to the traditional grocers. In the apparel sector the discount phenomenon has been increasingly prevalent for a number of years now and dressing in Top Shop, George and Primark with Gucci, Prada and Chanel is no longer uncommon. Indeed, for many would be fashionistas this mixing of Sloane Street with the High Street has become something of a badge of honour, leading to the term "Pradamark". In a number of cases the quality of the offering from discounters has had a huge impact on the traditional middle-market fashion retailers. The ability of the discounters to h a rness the benefits of an increasingly globalised supply chain, allied to a strong sense of what the customer wants, has caused major problems for some of our most established High Street names.

" The ability of the discounters to harness the benefits of an increasingly globalised supply chain, allied to a strong sense of what the customer wants, has caused major problems for some of our most established High Street names."

Some of the biggest and best established names in UK clothing retail have been forced into a major refocusing of their buying, merchandising and all round customer proposition as a direct result of the explosion in high quality, readily available and low priced "Fast Fashion". Even at the high end of the fashion spectrum we are seeing the impact of discounting, and for many leading names the growth over the last ten years of the factory outlet centre has become a new way to attract customers who previously would have possibly aspired to, but never actually felt able, to purchase certain brands. Once such outlets were an extension of the factory but now destination outlet malls across the country contain stores which are as well merchandised, and imbued with the same brand values, as their anchor stores on Sloane Street.

So discount retailing is not a new phenomenon and neither is our propensity to seek out a bargain. The dividing line between discount and more traditional retailing has become increasingly blurred and the best retailers from both sides of the divide have sought to make the most of the current trading environment. The irony of the situation is that for both ends of the cost spectrum it’s all about focusing on exactly the same core areas; getting the quality to value ratio is crucial whether selling a £3 t-shirt or a £300 pair of shoes. It’s in this area where the most successful discount operators retailers have helped to dramatically change the perceptions of what consumers can expect for their money and have had a profound and far reaching effect on the UK retail landscape. Make no mistake, discount retailing is here to stay and UK consumers will be delighted at the prospect. 

Shopping habits When people shop and how they pay

Key facts

  • Consumers – especially those in the younger age groups and men – are continuing to leave their Christmas shopping later than ever: 25% will not finish until Christmas Eve and 3% will actually finish after Christmas!
  • There is no noticeable increase in the proportion of people (16%) who will pay for most of their Christmas shopping on credit or store cards.
  • Few of those who do have credit cards are planning to spend up to their limits or increase those limits just to pay for Christmas.

Are consumers organised?

Continuing the trend of recent years, consumers are shopping even later for Christmas this year. Only 32% planned to start before November, compared with 34% last year, 35% in 2003 and 40% in 2002.

Women appear more organised, with 40% planning to begin before November, while 32% of men leave it until early December to make a start.

The proportion of consumers starting before November in Yorkshire (where people seem to have traditionally planned ahead in the past) has fallen from 45% last year to 31% this year. 14% of consumers in London shop for Christmas gifts in the last week of December – four times as many as in the North East – perhaps because they have easier access to a wider range of stores.

When will it all be over?

The majority of Christmas shopping will be completed by mid December, with 69% of consumers due to finish by then. However, a quarter of us (and a massive 32% of men) don’t plan to finish until Christmas Eve! Women will finish shopping earlier than men, with 20% having bought all their gifts by the end of November compared to 11% of men. 19% of consumers aged 55+ will also have it all wrapped up before December, compared to just 3% of 15-24 year olds.

Scottish consumers leave their shopping latest, with 32% planning not to finish until Christmas Eve, nearly three times as many as in the South West. Surprisingly, 7% of 15-24 year olds and 6% of consumers between 35-44 will not finish their shopping until after Christmas, against the national average of 3%.

This could indicate that these age groups are already feeling the pinch and looking to save money on next year’s Christmas spending, or that they are simply buying this year’s presents late.

How consumers will pay for Christmas

Mirroring last year’s survey, 80% of consumers will pay for the majority of their Christmas shopping using cash or debit cards, with women using this facility more frequently than men.

The overall proportion of people using credit cards (including store cards) has also remained static at 16%, with men much more likely to use them than women (20% compared with 12% of women).

Reaching the limit on credit?

Interestingly, fewer people in the 15-24 age range say they will be using credit cards this year. The highest credit card use is in the North East (26% of consumers, up from 14% last year), while the Scots are returning to using cash (88% compared to 79% in 2004).

Only 1% of consumers plan to fund their spending through requesting an increased limit on their credit cards, while 8% plan to take on more credit by spending up to their current limit. However, 91% of consumers don’t plan to take on more credit. They are either already at their limit and will not be requesting further credit; are not at their limit and don’t plan to spend up to it, or don’t have a credit card.

This suggests that consumer debt levels may be reaching their peak and consumers are not as ‘credit happy’ as they have been in recent years, which may be yet more bad news for retailers.

Industry analysis

By Tarlok Teji
Lead Partner, Retail

Performance under the Spotlight

Against the backdrop of media and analysts’ comments about the state of the retail industry and the flagging performance of many UK companies, there remains a fundamental question. When we talk about performance, just what’s being measured?

Recent research carried out by Deloitte into the performance and corporate information published by FTSE listed retailers shows a surprising variance in both the amount of information disclosed by different retailers and the types of data they choose to share publicly. It seems that, despite the attempts to harmonise and clarify reporting – through initiatives such as IFRS (International Financial Reporting Standards) and the OFR (Operating and Financial Review) many companies are playing their cards close to their chests.

Of the many indicators used internally by world class retailers to manage their business, two come to the fore in the golden quarter. However, our re s e a rch showed that only a relatively small proportion of the top listed retailers (58%) report their total like-for-like sales growth (LFL) and fewer still (39%) are pre p a red to share their UK LFL. These "same store" sales are seized on, quite justifiably, by many who feel they are the key measure of performance for the retail industry.

But again, we have to ask "just what is being measured?" You’d be forgiven for thinking that there are as many different definitions of LFL as there are companies prepared to report them! For example, some adjust their figures for inflation, others don’t. Certainly there is no one, industry-standard definition subscribed to by everyone. Why is LFL so important? Stripping out all the new store openings and other changes to the business, and simply focusing on whether you have improved the performance of existing stores under constant metrics gives you the clearest picture of the fundamental health of the business. Are you selling more, or less, to the same population of customers, in the same place, over the space of a year or a quarter? And at Christmas this level of focus sorts out the best from the rest. Retailers’ reluctance to disclose their true LFL performance by store or category is understandable. This is sensitive commercial information. But for the owners of a listed business – the shareholders – it’s a fundamental factor in deciding whether valuations are realistic.

" ... only 58% of the top listed retailers report their total LFL sales growth and fewer still are prepared to share their UK LFL"

The other key (and related) metric, in our view, is growth in salesper- square-foot. Again, only a very small proportion of retailers report this: less than 10% disclosing global figures and only 6% prepared to divulge their UK performance. How well a retailer is utilising the space in a climate of planning restrictions and lack of prime sites becomes even more important. Of course, this too could be seen as handing over competitive information on a plate, but nonetheless it is vital that retailers do find accurate and meaningful ways to measure it: even if the only way they then benchmark that data is in closed, confidential forums. Whoever coined the phrase that ‘retail is detail’ was spot on. If you can accurately measure your space utilisation to store level and ideally even more detail, you’re in control of your business. Taking effective corrective measures then becomes a matter of pinpoint laser surgery, rather than indiscriminate amputation!

With the greater push towards good corporate governance and improved disclosure of fundamentals, many in the retail industry will need to follow the example of the best in finding a way to share substantive performance data without giving away their whole game.

Location and dislocation Where consumers shop for Christmas ... and why

Key facts

  • Most people will still do the majority of their Christmas shopping in the High Street and department stores.
  • Both the supermarkets and the Internet are rapidly making inroads. 50% more people than last year said they would buy most of their Christmas gifts on line.
  • Men are still more likely to shop on line than women.
  • Convenience is paramount for consumers when it comes to choosing where they shop for gifts and food, followed by value for money and prices. Easy parking is rapidly gaining in importance.
  • Retailers believe that price and value draw customers to their stores at Christmas, followed by range and brand image.
  • People are choosing to shop online to save time, as well as to find a bargain. Although being able to see and handle products remains the main reason people don’t use the Internet.

High Street losing out

Although the highest proportion of consumers (31%) will use high street shops for the bulk of their gift shopping, both the Internet and supermarkets are making significant inroads. Department stores should also be watching their backs, as the number choosing to shop mainly in these outlets has fallen slightly from 30% last year to 28% this year.

Specialist shops are still more popular with men than women, with 7% of men using these compared to 4% of women.

The High Street is likely to be busiest in the North East, North West and South West, and quietest in Wales. Department stores become more popular as consumers’ age increases, whereas people between 35-44 are most likely to use out-of-town retail parks. 15-24 year olds favour the High Street, with 46% saying this is their main shopping destination for gifts.

Supermarkets still gaining ground in non-food

Supermarkets should have an even happier Christmas than last year, with the percentage of consumers intending to do most of their gift shopping here increasing from 6% last year to 8% this year.

This growth rate not only reflects the strong consumer desire for convenience in their shopping trips, but also the supermarkets’ own uncompromising push into non-food retailing. Supermarkets are by far the most popular with the oldest age group, with 14% of those aged 65+ planning to do the majority of their Christmas gift shopping there.

The Scottish are the most likely to do their Christmas shopping in the supermarket, with 13% selecting this method for their shopping compared with fewer than 1% in the North East. However, 6% of people in the North East are planning to go abroad for their Christmas shopping this year! When it comes to shopping for Christmas food, the supermarkets may not have it all their own way. 67% of all shoppers will still go to the supermarkets as their main place to food shop, as expected, but this is down slightly on last year’s figure of 69%.

Our survey shows 14% of women plan to food shop at variety stores and 9% of men intend to use smaller local/independent stores. People in Wales are most likely to choose the small local/independent stores (17%), perhaps given the more rural nature of the area, and London the least likely (3%). 

Internet shopping takes off

This year, our survey shows a 50% increase in people using the Internet for the bulk of their Christmas shopping, up from 4% in 2004 to 6% this year. More and more retailers are recognising the increasing importance to consumers of online shopping. 70% of retailers now think that having a website is important to consumers when buying their Christmas shopping, compared to 55% last year.

However, there remains a stable proportion of retailers (18%) that do not consider the Internet important. Given the increased use of the Internet these retailers may be forced to change their view.

Against the backdrop of general industry malaise, no retailers we questioned are expecting a fall in Internet sales this year, and 66% are predicting an increase. This is backed up by the Interactive Media in Retail Group (IMRG), who predict online Christmas sales will be £5 billion this year, compared to £3.5 billion in 2004, a 43% increase. Online sales volumes are expected to be 9% of total retail sales, compared to 7% in 2004.

Demographics matter in the online shopping landscape

Men are still more likely to use the Internet than women for most of their Christmas gift shopping, with 8% of men expecting to go online, compared with 5% of women. The 45-54 age range are the most likely to use the Internet to buy most of their gifts, while only 7% of 15-44 are planning to do so.

Using the Internet for the majority of gift shopping is highest in Yorkshire, at 11%, but lowest in the South West.

Our survey shows that consumers are generally intending to use the Internet more this year than last. There has been a reduction in those not planning to use the Internet at all for their Christmas gifts/clothes from 67% last year to 49% this year.

Use of the Internet as a consumer research tool is also growing. Not only are an increasing number of people planning to buy on line, but there has also been an increase in those who will use it to carry out research and comparison shop.

Those retailers who don’t think that the Internet is important to their business may want to reconsider in the light of these significant behavioural shifts.

Men are more likely to shop online for gifts and clothing than women. The 35-44 age group are the most likely to use the Web.

Those in the South are least likely to use the Internet for their Christmas gift/clothes shopping – perhaps because they have better access to ‘bricks and mortar’ shops –with 60% saying they don’t intend to use the Internet for their Christmas shopping. By contrast, the highest proportion of people planning to use the Internet this year is in the North West.

Which Web sites?

High Street stores’ Web sites are the most popular overall, with 60% of consumers who do Christmas shopping online using these sites. This is reflected across all regions except the South West, where supermarket websites are most popular. The next most popular are the supermarkets’ sites, used by 49%.

Women are more likely than men to use both these types of sites, while men use manufacturers’ Web sites more than women (48% compared to 40%), perhaps because of an interest in electrical items and gadgets. They are also much more likely to use I n t e rnet trading websites, such as eBay, than women (44% compared with 30%).

Food buying on line

Consumers use the Internet for their Christmas food shopping mainly to save time (24%), for the convenience of delivery (24%) and to avoid the in-store crush (21%). However, 66% of consumers still do not plan to use the Web for their Christmas food shopping.

People in East Anglia are the most likely to use the Internet for their Christmas food shopping, with only 58% saying they won’t use it compared to 83% in the South West.

Full-time workers are the most likely to shop on the Internet for their food shopping, probably due to lack of time, compared with part-time workers who don’t plan to use the Internet at all. The Internet-confident youngest age group (15-24) are the most likely to use the Internet for supermarket shopping, with 7% selecting this option, compared with those 65+ who are the lowest at 1%.

Where to shop? Deciding factors

Convenience remains the key reason consumers give for choosing an outlet for their Christmas gift shopping – cited by 50% of respondents – followed by value for money (42%) and prices (37%). Value for money is particularly important to the over 65s. When it comes to food shopping, convenience ranks even higher: 57% of respondents put it at the top of their list in choosing where to shop.

Easy parking saw a big leap from last year, up from 25% to 30% of consumers (and 32% of women) who see this as a major reason to shop in a particular outlet for gifts, and 32% when it comes to food shoppers. There has also been an increase in those who intend to use home delivery, from 5% to 9%, over the past 12 months.

All these factors underline why the supermarkets and the Internet are increasingly popular – and provide yet another headache for High Street retailers who have limited short-term capacity to address some of these issues. Our findings also highlight the need for robust location planning when deciding where to base new stores.

What retailers think makes people buy

Despite the fact that this year, as in previous surveys, consumers highlighted convenience and easy parking one of their top three reasons for choosing a store, the retailers still don’t seem to see these as key drivers in attracting customers (or maybe they have simply resigned themselves to the fact that they cannot always offer these to customers).

Interestingly, in 1995 retailers thought that customer service and quality goods were most important to consumers. However, today they are much more price focussed.

In 1995 consumers thought a large selection of goods and convenient location were most important. And while convenience remains key, range is now less important.

It is surprising that only 3% of retailers we polled this year think that promotional discounts are a key driver in attracting consumers: yet this is a tactic that has been increasingly employed in recent times, particularly when sales have been sluggish. It is of particular importance to the 15-24 age group, where 28% consider this important in choosing where to shop at Christmas, perhaps reflecting their lower income profile.

However, retailers and consumers are in agreement regarding price (considered most important by those in Yorkshire where 46% cite this as a main reason for choosing a store), range, and value for money being important factors.

In store entertainment is the lowest reason consumers cited for shopping at a particular outlet, with only 1% selecting this as their reason. So are the grottos, Christmas music and decorations provided by retailers really worthwhile?

So why shop on line?

The main reason people gave for using the Internet for Christmas gift shopping, is to save time, with 30% of consumers choosing this option: an increase from 22% in 2004. Men seem to be more interested in the savings they can get online, with 24% looking for better prices compared to only 15% of women. Whereas women are more swayed than men by quick delivery to door. The Scottish value quick delivery to the door more than any other region, with this being of least concern to those in the North East and Midlands.

Browsing without being hassled by sales staff was most important to the youngest age group, 17% of 15-24 year olds chose this.

The main reasons for not using the Internet – in line with the findings from our previous surveys – are that people, especially women, say they prefer to see and handle products (54%) or they like the shopping experience (43%). Men and people in the 15-24 age group don’t like having to wait for delivery!

Perhaps surprisingly, more people in this youngest age group (23%) in our survey said that difficulties in using the Internet or finding products were a key reason for not shopping on line; when they are often viewed as the most Internet savvy. Whereas 25-34 year olds were least affected by this, at only 11%.

Fewer consumers than last year were concerned about fraud (32% down from 34%) despite a number of recent highprofile attacks particularly on banking Websites.

Retailers – Which of the following is the key driver in attracting consumers to your store this Christmas?

Consumers – What are the main reasons behind your decision to shop at a particular outlet when doing your Christmas gift shopping?

Consumers

Retailers

Convenience

Price

Value for money 

Value for money

Brand and Price image

Easy parking

Advertising

Industry analysis

By Jo Tucker
Managing Director, IMRG

Dreaming of an online Christmas ...

Interactive shopping has been around since the 1980s, but it was the Internet that revolutionised home shopping with new technologies that arrived in the mid-1990s. Ten years on, these technologies have evolved into mainstream retail offerings that are now challenging the dominance of the High Street. Consumers have become accustomed to the advantages of new electronic retail channels, and positive experiences have encouraged widespread adoption. In 2004, there were nearly one billion people shopping online, and global e-retail revenues generated $150 billion’s worth of revenue, £14.5 billion in the UK alone.

Even in uncertain economic climates, e-retail sales have continued to go from strength to strength. By Christmas 2004, as retailers faced the toughest trading conditions in decades, half the UK population was shopping online and sales potential was equivalent to five times that of London’s West End. Imagine it: all the choice of a 50-mile-long High Street, but without the inconvenience of crowds, queues, parking, and having to carry it all home. Anyone can see the benefits, especially specialist retailers for whom the Christmas season is all-important.

Not surprisingly, last year Christmas e-retail sales rocketed to more than 15% of total retail spend, double the normal level. And all the signs point to a repeat performance in 2005. The IMRG Index, tracking key e-retail sales indicators, recorded a growth factor of 1500% over five years to this April, compared to total retail sales growth of just 20%. Web monitoring agency Hitwise expects online sales to increase by 25% over the July – December 2005 period, as more shoppers log on to the Internet to buy Christmas gifts.

" Last year Christmas e-retail sales rocketed to more than 15% of total retail spend, double the normal level. And all the signs point to a repeat performance in 2005."

So amidst the gloom of the High Street, there are a few bright lights still shining. And retailers with the vision and agility to build on their supply-chain capability and capitalise on the Web without diluting their brand, may yet survive the coming storm. 

Customer service matters

Getting under the skin of the Christmas shopper

Key facts

  • Queuing is the biggest frustration for Christmas shoppers, followed by staff not being available.
  • Consumers and retailers have slightly diverging views on what constitutes good customer service.
  • For consumers the key issue is the friendliness and politeness of staff, whereas retailers see helpfulness and knowledgeability as most important.

Frustration factors

The most annoying thing about Christmas shopping for consumers is queuing, with 62% citing this as a frustration factor (and men are more impatient than women). This was followed by staff being unavailable or too busy (27%).

So retailers are right in thinking that it is important to serve customers quickly at Christmas, with 34% citing this as a key customer service factor.

Women are more annoyed by products not being available, with 24% citing this as a frustration factor compared to men at 18%. Men, on the other hand are, more irritated than women by staff not being available.

More women admitted to liking Christmas shopping than men: 18% compared to 12%. The Welsh seem to enjoy Christmas shopping more than any other region, particularly East Anglia, the South West and London.

What makes good customer service?

38% of the consumers questioned considered friendliness and politeness to be the most important aspect of customer service, though this was down from 45% last year. This trend is reflected across all the regions but is key in Wales where 52% of consumers counted it as important compared with only 34% in London. More women than men consider friendliness and politeness as the most important aspect of good customer service, with 40% compared to 36%.

However, when we asked retailers what they believe to be the three most important attributes of their staff, especially during the Christmas period, they identified helpfulness and knowledge of staff as being top of the list. This suggests that, in the main, consumers already know what they want to buy (and therefore, do not need the knowledge of staff), but that they would like their shopping trip to be as pleasant as possible, interacting with friendly and polite staff. However, helpfulness and knowledgeability of staff were seen as an important factor by 18% and 16% of consumers respectively.

Industry analysis

By Dr Ira Kalish
Director of Global Economics and Consumer Business, Deloitte Research

Global retail landscape

The global retail landscape has been relatively friendly to the retail sector lately. Economic growth has been reasonably good in many parts of the world, thereby stimulating consumer spending. Moreover, in many countries, frothy housing prices have made consumers feel especially wealthy. This has led them to become less thrifty and more willing to spend – especially on their homes. It has also led many consumers to cash out the increased equity in their homes in order to have cash to spend. This trend has been especially notable in the United States, although the signs in the UK are that this is now cooling off.

Yet in the long term the strength of the global economy may be challenged as global imbalances are corrected. The huge US current account deficit, unsustainably large, will decline through a combination of dollar depreciation, higher interest rates, and economic slowdown in the US. For global retailers, this means that growth opportunities are likely to shift increasingly toward faster growing emerging markets such as China, Russia, and possibly India.

In the US, the economy has been adversely affected by the rise in the price of oil. Higher petrol prices have diverted nearly 2% of disposable income to oil exporting countries. In response, consumers have cut back on spending, especially lower income consumers. Moreover, Katrina had a temporary negative effect on economic activity. Yet this will be reversed as the government’s massive recovery spending kicks in. For the coming holiday season, retailers can expect that sales growth will be modest compared to last year. High oil prices, higher interest rates, and a consequent cutback in housing refinance activity will render consumers less prone to spend.

In much of the developed world, retail spending is likely to experience modest growth during this Christmas season. Economic growth on the European continent has been stymied by relatively high interest rates, higher oil prices, and lack of movement on economic reforms.

In Japan, the situation is not likely to be very good in the near term. Yet longer term trends bode well for retailing in the world’s third largest economy. Having suffered through 15 years of stagnation and deflation, the Japanese economy is finally starting to show signs of sustainable recovery. More important, this recovery is likely to be driven by domestic demand rather than just exports as in the past. Economic reforms, combined with aggressive monetary policy, are leading to improved consumer and business confidence and reduced debt levels. With a strong commitment to Japan by US giant Wal- Mart, the chances of radical improvements in the efficiency of consumer distribution have increased.

Thus more foreign investment, combined with domestic retail consolidation, is likely.

The country worthy of most attention is China. Through rapid growth, it has emerged as one of the world’s economic powerhouses. Yet like Japan and Korea before, its growth until now has been disproportionately fuelled by exports rather than domestic demand. That will soon change. China is likely to further revalue its currency, thereby lowering import prices and effectively increasing the purchasing power of Chinese consumers.

China’s distribution system is undergoing a radical transformation. Through foreign investment, as well as privatisation, modern formats are taking market share from state-run department stores and street markets. Under World Trade Organisation rules, foreign investment in the distribution sector is now relatively unrestricted. For global retailers and suppliers, this will mean a greater and more costeffective opportunity to reach China’s 1.3 billion consumers. Expect to see the world’s leading retailers aggressively expand investment in China.

" For global retailers, this means that growth opportunities are likely to shift increasingly toward faster growing emerging markets such as China, Russia and possibly India."

Technology takes a back seat 

Retailers shift their priorities

Still waiting for RFID

Radio Frequency IDentification (RFID) is still not making an impact in UK retail. Whilst the vast majority of retailers can see potential benefits in introducing this technology, only 43% of companies have any plans to implement it. This suggests that in the current, challenging environment retailers are not focussing on introducing new technologies with the associated costs and perceived risks of doing so.

Three of the four main drivers for adoption of RFID remain stable compared to last year. However, competitive advantage is now seen as a key driver by fewer retailers, just 7% this year compared with 13% in 2004. Chip and PIN becoming well established On the other hand, introduction of Chip and PIN technology has moved on considerably since our 2004 survey. 52% of the retailers surveyed are using Chip and PIN, compared to just 25% 12 months ago. The Chip and PIN Programme recently announced that in the first six months of 2005 there was a reduction of £36 million (29%) in counterfeit, lost and stolen plastic card fraud compared to the same period the previous year.*

* Source: Chip and Pin, "After 14 February 2006 Chip and PIN cardholders must use their PIN to be sure they can pay", Press Release 10 October 2005. Timeframe for adoption for chip & PIN

About this survey

The UK retail landscape The findings of this survey are based on consumer data obtained by market research carried out by NOP World, on behalf of Deloitte. The respondents were chosen from adults aged 15 years and over, using a representative sample covering the adult population of Great Britain. In conjunction with this, Deloitte also surveyed the UK retail industry, using a questionnaire sent to over 280 organisations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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