Counting the cost of Christmas

Every year, retailers everywhere look forward to Christmas as the time of year when shoppers really splash out, spending money on things they normally wouldn’t even consider.

Certain newspapers and news channels seem to glamorise the event, painting a picture of shops fighting for custom – and shoppers fighting the temptation to spend.

So every January, we hear all the stories about the financial consequences of Christmas. Either we’ve spent too much and need to get our spending under control, or we’ve spent too little, which means hard times for the shops and worries about the economy in general.

This year, we’ve been hearing mixed messages.

The shop’s perspective – spending too little
As last year drew to a close, the financial news grew gloomier every month. By the time we started the run-up to Christmas, the news was full of stories about the credit crunch and falling house prices. Many analysts promised a gloomy Christmas for shops, with pessimistic shoppers reluctant to spend their limited budgets.

In January, shops across the country began confirming those expectations, reporting a Christmas of disappointing sales and shrunken profits.

In February, the UK payments association APACS revealed that spending on plastic was up from Christmas 2006, but only by 4% – nowhere near the increases of almost 9% we’d seen in recent years.

The shopper’s perspective – spending too much
With so many unhappy shops, you might think shoppers had kept a close watch on their finances this Christmas. Yet lower profits don’t necessarily mean lower spending – millions of people spent more than they intended at Christmas.

Online shopping was up 269% on Christmas Day itself, according to Market research firm IMRG. And Experian`s Retail Footfall Index revealed a 25.1% increase in shoppers on Boxing Day.

Where did the money go?
When shops slash prices to bring in the customers, it often works – but at a price. With greater numbers of people buying heavily discounted goods, the shops can sell more but still fail to make the kind of profit they’d like to see.

And when the cost of living rises too sharply, shops can lose out even when shoppers spend more. In February, the Office for National Statistics reported that ‘factory gate inflation’ (growth in the price of goods when they leave the factory – not the price consumers pay) had hit a 16-year high, largely thanks to rises in the price of oil and food.

2008 – tough year for everyone?
So we start 2008 in an awkward situation, with shops and shoppers alike suffering financially.

The KPMG/SPSL Retail Think Tank sees a tough year ahead for shops, as consumers struggle with falling disposable incomes and consumer confidence drops as a result of lower bonuses, worries about the housing market – and, of course, the credit crunch.

As for shoppers: Sainsbury’s Finance organised a survey at the end of last year (30 November - 2 December). They calculated that around 8.6 million people were planning to use plastic for half or more of their festive spending. Only 61% of UK shoppers expected to finish paying for Christmas within a month, and 1% (almost half a million people) thought they’d still be paying for this Christmas next Christmas!