ONLINE SALES TO LIFT UK RETAIL GROWTH THIS CHRISTMAS

Oct 27 2010 By Mary Barabe

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UK Christmas sales forecast to rise by £862 million (1.3%) this year compared to 2009. However, while offline sales are set to decline by 2.9% against last year, internet sales are forecast to soar by 29% over the same period [1]

*Growth in Christmas retail sales expected to slow in the UK, with total sales predicted to rise by 1.3% (£862 million) this year, compared to 1.9% (£1.3bn) between 2008 and 2009[2]

*Christmas sales forecast to hit £68.7 billion in the UK in 2010, of which over £11.5 billion (16.8%) is expected to be spent online, that’s 17 pence for every Pound spent compared to 11 pence in 2008[3]

*Predictions reveal UK offline Christmas sales set to fall by 2.9%, from £58.9bn last year to £57.2bn in 2010 - a £1.7 billion decrease[2]

*Conversely, online Christmas sales expected to rise by 59.6% or £4.3bn since 2008, and by 28.8% (£2.6bn) this Christmas alone[2]

*UK expected to enjoy third highest rate of overall retail growth in Europe this Christmas at 1.3%, behind Sweden (4.3%) and Germany (1.9%). Total sales in Denmark (-3.2%), Norway (-1.9%), Spain (-1.2%) and Italy (-0.5%) set to fall in comparison to 2009[2]

*UK consumers to spend more than any other European country at Christmas both offline (£57.2bn) and online (£11.5bn) - accounting for 25% of all retail spending in Europe this Christmas[1]

*UK to experience third highest growth in festive online retail sales (28.8%), followed by France (30.7%) and The Netherlands (36.8%)[2]

With Christmas and New Year typically accounting for around 25% of the UK retail industry’s annual sales and around one half of all profits, Christmas 2010 should prove crucial in boosting recovery in the sector as the UK looks to strengthen its economic position in 2011. However, despite initial positive indicators earlier in the year, growth prospects for the UK have worsened due to deteriorating consumer confidenceⁱ and the prospect of deep public spending cuts aimed at reducing the national deficit - the second largest in Europe, and currently equivalent to 11.5% of GDP. All factors expected to impact on UK retail sales during the festive season.

According to the report issued today by Kelkoo, the online shopping comparison site, these recent setbacks are likely to have an impact on Christmas spending in 2010, with total sales in this periodⁱⁱ predicted to rise by 1.3% (£862 million), compared to 1.9% (£1.3bn) between 2008 and 2009. However, with online spending continuing to thrive, internet retailing is expected to play a key role in propping up overall retail growth in the UK this Christmas, with year-on-year sales predicted to increase by 28.8% or £2.6bn. By comparison, offline sales are expected to perform poorly, falling by 2.9% or £1.7 billion against the previous year [1].

Accounting for over a third (35.5%) of all consumer spending, the retail sector is the second largest industry in the UK economy. The report, commissioned by Kelkoo and prepared by the Centre for Retail Research, assesses the sales forecast for the UK retail sector during the vitally important six week Christmas trading period. The data in the report is drawn from national statistical authorities, independent research organisations including Euromonitor and Mintel, and a survey of 50 large retailers across Europe, including 22 in the UK.

Richard Stables, CEO Kelkoo, comments: “The peak weeks of Christmas trading are critical for UK retailers, as many will earn up to 60%ⁱⁱⁱ of their profits during this period. In addition, the retail sector is a major contributor to the economy, employing 3.2 million people across 288,522 million retail stores and responsible for annual retail sales of £366.7 billion – 21.3% of GDP. The retail industry is seen by economists as a leading indicator of economic trends, and results this Christmas will prove vital in stimulating retail growth and aiding the UK’s economic recovery as a whole.”

Christmas 2010 Spending Forecast

Total Christmas sales are expected to rise slightly this year to £68.7 billion, equivalent to 18% of annual retail sales in the UK, compared to £67.8 billion in 2009, and £66.6 billion in 2008. In fact, the UK will account for the highest total spend out of any of its European counterparts this festive season, both offline (£57.2bn) and online (£11.5bn) - accounting for 25% of all Christmas retail sales in Europe[1].

Retail spending has increased marginally throughout 2010 in the UK, and is projected to rise by 1.3% this Christmas. Similarly rises are forecast in Sweden (4.3%), Germany (1.9%) and France (1%)[2]. The UK, which is forecast to have the third largest growth rate in Europe, enjoyed a period of rapid growth in Q2 2010, and this, combined with the VAT rise to 20% on 4th January 2011, is likely to stimulate spending this Christmas. According to retailers, the VAT increase will give them an opportunity to generate additional sales in the weeks preceding Christmas and up to the date of the VAT increase, as the first half of 2011 is expected to be poor in trading terms.

In contrast, Denmark (- 3.2%), Norway (-1.9%), Spain (-1.2%), and Italy (-0.5%) are all expected to experience a decline in Christmas retail spending compared to 2009[2]. In the case of Denmark, the drop can be attributed to the continuation of a larger trend following sluggish performance in late 2009 and early this year, which saw retail sales volumes in Q2 2010 lower than those during 2009. Similarly, Norway has experienced a general reluctance amongst consumers to spend, resulting in flat retail growth since last year. The predicted decrease in Christmas sales in Spain and Italy can be attributed to lower levels of consumer confidence and falling retail sales volumes in general, along with the overall contraction experienced by these economies until the end of 2009, and subsequent slow growth rates.

Online Outlook

Whereas total offline Christmas sales in the UK are projected to fall by 3.7% (£2.2bn) between 2008 and 2010, and by 2.9% (£1.7bn) since 2009, online Christmas sales are expected to rise by 59.6% (£4.3bn) from 2008 to 2010, and by 28.8% (£2.6bn) this Christmas alone, reinforcing the importance of online sales in driving retail sector growth[2]. Online sales are expected to represent 16.8% (£11.5bn) of total sales this Christmas, compared to 13.2% (£8.96bn) in 2009 and 10.9% (£7.23bn) in 2008 - equivalent to 17 pence for every pound spent compared to just 11 pence in 2008[3].

Online sales in the UK are forecast to be the highest of the nine European countries surveyed, both in terms of the total consumer spend (£11.5bn) and as a percentage of total Christmas sales (16.8%). Consumers in Germany (£7.3bn) and France (£5.6bn) are the next highest spenders. In contrast, consumers in Italy (1.5%), Spain (2%), Sweden (8.9%), and The Netherlands (9.1%) are predicted to spend the lowest share of their budget online[3].

Richard Stables concludes: “The UK retail outlook this Christmas is tepid, as consumer confidence weakened more than expected in September, and people's outlook on their own finances and the economy has darkened as a whole. However, UK retailers can expect a more optimistic outlook than other countries in Europe, with sales likely to continue growing for the remainder of the year as consumers endeavour to avoid the imminent rise in VAT. In addition, online spending is showing no signs of slowing down, and is mounting a real challenge to the dominance of the high street. Internet sales in the UK are set to be more important than ever this Christmas, with consumers spending record amounts online, and online commerce acting as the primary driving force for overall retail growth during the festive season.

“It is against this background that retailers who are serious about enhancing their growth prospects have recognised the importance of establishing a strong online presence, as demonstrated by H&M, Gap, and Zara, who have all launched online sales portals within the last quarter. Even high street stalwart, John Lewis, recently announced that ‘click-and-collect’ now accounts for around 20% of its business and its online operation is expected to turnover £500 million this year.

“The prospect of deep government spending cuts and uncertainty over the economic recovery has weighed on consumer morale this year, fuelling a trend towards greater frugality, increased saving, and reduced use of credit. It is clear that consumers are as determined as ever to make sure they are getting the best prices, which explains why we expect to see many of them head online for their Christmas shopping.”

For further information visit: www.Kelkoo.co.uk

For further information please contact: 

Cristina Rebollo, PR Director, Kelkoo

Tel: +44 (0)203 4029 446
Mobile: +44 (0)7796 540645

Cristina.rebollo@kelkoo.com

The Red Consultancy

Tel: +44 (0)207 025 6603