Looking Ahead... Webloyalty's Easter Retail Research 2014

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The latest research report from Webloyalty and Conlumino looks at Easter retail trends, and what we are planning for the Easter break. The report also reveals the nation's favourite chocolate Easter egg!



2. Page 2 Introduction 2014 Webloyalty & Conlumino enquiries@webloyalty.co.uk | 020 7291 8720 Looking ahead ... Easter March 2014 Webloyalty 19-21 Great Portland Street W1W 8QB 020 7291 8720 enquiries@webloyalty.co.uk www.webloyalty.co.uk Conlumino 7 Carmelite Street, London EC4Y 0BS 020 7936 6654 hello@conlumino.com www.conlumino.com This research has been commissioned by Webloyalty to provide retailers with insight into the current trading environment as well as some more specic insight around the Easter occasion. About Webloyalty Webloyalty is a leading reward programme provider working with major online retailers to help them build stronger, more protable relationships with their customers. Through our membership programmes, such as Complete Savings and Shopper Discounts & Rewards, we help our online retail partners customers save hundreds of pounds a year while providing the partner with an additional revenue stream. As well as incentivising customers to make repeat purchases at the partners site, they can also earn cashback and get great deals on everything from fashion to electronics to travel at hundreds of top online stores. Webloyalty was established in the UK in 2007 and has since expanded into France, Germany, Spain, Italy, Ireland, Brazil and the Netherlands. About Conlumino Conlumino is a retail research agency and consulting rm. Our work focuses on all aspects of retailing and consumer behaviour, which we deliver through bespoke reports, projects and presentations. We work with many of the worlds leading retailers, property rms and those in the nancial sector to help them maximize success through developing a thorough understanding of the sector and its likely future performance. Foreword 3. Page 3 Introduction 2014 Webloyalty & Conlumino enquiries@webloyalty.co.uk | 020 7291 8720 Looking ahead ... Easter March 2014 Summary The economy GDP growth, falling unemployment and a buoyant housing market point to a burgeoning recovery in the British economy. Although the newfound optimism is to be welcomed, it should be viewed with a note of caution. On the surface the rapidly falling levels of unemployment are a success story, but stagnant wage growth and low productivity levels mean that ination remains high, while there is a danger that the recovery is unbalanced and over-reliant on consumer spending. There are also fears that the governments Help to Buy scheme is leading to unsustainable growth in property prices. Stronger growth in the export market will dampen speculation that the recovery rests on weak foundations. Retail trends Squeezed household budgets have created a tough environment for retailers. Widespread ination in essentials like food and household bills mean that disposable incomes remain low. The by-product of this is a discounting culture with shops competing to oer the best value in the hope of boosting sluggish volumes. Competition in retail is rife and this, along with advances in technology is fuelling a growth in innovation as retailers strive to keep up with changing shopping habits. Whether it be multichannel advances, ever more convenient fullment options or instore technology, retailers across the spectrum are having to re- evaluate their oers to retain relevance and stay one step ahead of the competition. Sentiment While views on the economy have become increasingly positive in recent months, the same cannot be said of consumers views on their own personal nances. Unemployment may be down, but wages are not increasing and ination in the cost of living remains persistently high. Perhaps, even more worringly, there is a wide regional variation in consumer sentiment with much of the optimism about the economy and personal nances being driven by the more auent South. To some extent this bears out fears that the recovery is overly focussed on London to the detriment of other parts of the UK. Consumer data Our consumer survey indicates rising levels of apathy towards Easter, with many viewing the occasion as over- commercialised. In spite of this, the popularity of typical Easter products endures, with hot cross buns and Easter eggs the top products consumers intend to purchase. In the Easter egg market, brands still have the edge, with own-brand eggs facing a challenge to catch up. Reecting the general lack of enthusiasm for Easter, planned activities are decidedly low-key. It may not be party season, but the Easter Sunday meal is still likely to take centre stage, with chicken and lamb heading up many consumers shopping lists. 2014 has arrived with plenty of scope for optimism in the retail sector. On the economic front, housing transactions are up, unemployment is down and a general feeling of optimism is pervading the economy and consumer sentiment that has not been seen since the recession began to bite. With the Easter bank holiday sales period on the horizon, greater momentum in the housing market will be particularly welcome news for home and furniture retailers for whom such periods are critical. Positive movement in the January sales certainly bodes well for more good news over Easter. Looking ahead to Easter 2014 Tough times are still ahead for retailers though. Soaring household bills and sluggish wage growth mean household budgets continue to be squeezed. Retailers are having to work harder to encourage spend resulting in widespread shop price deation, with discounting and promotions rife. Trading in the early stages of last year was hit by unseasonably cold weather, but with the crucial Easter weekend falling a few weeks later this year, in April, and no sign of a cold snap as yet, gardening and outdoor living retailers in particular will be crossing their ngers for a sunny spring ahead. 4. Economic update Current state of retail economy 2014 5. Economic update Page 5 2014 Looking ahead ... Easter March 2014 2014 Webloyalty & Conlumino enquiries@webloyalty.co.uk | 020 7291 8720 The economy and consumer sentiment Auspicious signs Following one of the longest and deepest recessions on record, signs of recovery, however modest, are extremely welcome. Certainly the early stages of 2014 have already shown up some auspicious indicators with falling levels of unemployment, rising GDP and even a long-awaited slowdown in ination. Indeed the Oce for Budget Responsibility (OBR) forecasts GDP growth of 2.4% for 2014, although real GDP is still 2% below its 2008 peak. An unbalanced economy? The UK economy grew by 0.7% in the third quarter of 2013, making it one of the fastest growing of the major world economies. Nevertheless, fears remain that the recovery is an unbalanced one, over-reliant on consumer spending, fuelled by unsustainable house price growth and nanced by a sharp fall in the savings rate. Falling productivity In August 2013, the Bank of Englands Monetary Policy Committee stated that it would not raise interest rates until the unemployment rate fell below 7%. It was assumed that this would not occur until at least 2016, an assumption that was based on the notion that growth would be driven by improving productivity. However, stubbornly high ination and the rapid fall in unemployment, to 7.1% in January this year, suggest that in fact productivity has weakened. It is in part this lack of productivity that explains why the UK has experienced such stagnant growth in real wages, leading to one of the longest declines in living standards in 60 years. Low productivity is especially worrying as it could result in the recovery running out of steam thanks either to a spiralling burden of debt or the BOE being forced to raise interest rates to head o the pressure of ination. The latter in particular would have an immediate dampening eect on retail spending growth. Current account decit worryingly high Further cause for concern comes in the form of the UKs poor performance in the export market. A current account decit of 5% of GDP suggests that import spending greatly exceeds exports; a trend that is both unsustainable in the long term and could lead to the devaluation of the pound. The challenge facing the UK economy lies in rebalancing the recovery away from consumer spending by boosting export growth. There are signs that exports to emerging markets are on the increase though the UK still lags behind many other Western European economies in this regard. Over the next few pages we will take a more in depth look at some of the key issues in the UK economy and consumer sentiment and how they are likely to impact upon retail. Signs of modest recovery but there are likely to be bumps in the road ahead Positive indicators may be masking the true state of the UK economy as fears emerge over an unbalanced recovery 6. Economic update Page 6 2014 Looking ahead ... Easter March 2014 2014 Webloyalty & Conlumino enquiries@webloyalty.co.uk | 020 7291 8720 The economy and consumer sentiment With wage growth remaining stagnant during the recession, rising ination levels have placed a signicant strain on consumer nances. Persistently high ination in the cost of living, particularly in areas such as household utility bills has eroded household budgets to such an extent that retailers are having to discount heavily to stimulate demand. In January the BRC unveiled gures which showed that shop prices had fallen for the ninth consecutive month with the sharpest rate of deation since December 2006. Furniture, clothing and electricals all witnessed signicant price softening while even in the food sector, which has spearheaded retail ination in recent years, the rate of ination slowed down. What does it mean? Stable commodity prices and favourable forecasts going forward are helping retailers to keep prices down, but until the economic recovery lters through fully to the level of consumer nances and the cost of living begins to fall, retailers are likely to have to continue to take a hit on their margins . In the grocery sector falling consumer loyalty and a greater propensity for consumers to shop around in search of the best deal is forcing more established retailers to re-evaluate their proposition in the face of rising competition. Last year Tesco unveiled its vision for the future of big box retail, while Asda will attempt to combat its lack of physical presence in the convenience market with an ambitious strategy to broaden its click & collect oer. As the high street comes under increasing threat from online retailers, Argos is busily undergoing its transformation to a digital retailer, whilst across the board retailers are beeng up their multichannel competencies. Retailers, like Dunelm, are also looking at greater direct sourcing and better space management to boost agging margins. What does it mean? In the context of this squeeze on consumer nances, retailers are nding volume growth to be an elusive commodity. As the ght for consumer spend becomes increasingly hard fought, this in turn is fuelling innovation. Shop price deation as retailers compete to stimulate demand. A competitive market is forcing retailers to innovate. 7. Economic update Page 7 2014 Looking ahead ... Easter March 2014 2014 Webloyalty & Conlumino enquiries@webloyalty.co.uk | 020 7291 8720 The economy and consumer sentiment In comparison with the recent slowdown, the housing market is buoyant: 2013 saw a considerable rise in mortgage transactions in an indication both of strong demand and a willingness of banks to provide nance, while house prices have risen nearly 8%. The strength of the housing market is also its biggest weakness, however, with real fears that rising prices are causing many properties to be unaordable, particularly in regions of persistently high demand such as London and the South East. There are warnings that the price rises are unsustainable with the governments Help to Buy scheme fuelling a housing bubble, while interest from wealthy foreign investors in the London property market may be propping up prices. What does it mean? Greater momentum in the housing market should provide a long-awaited boost for home and furniture retailers that have been particularly hard hit by the recession. While this has inevitably been helpful, the pace of housing growth in many regions remains sluggish by historic standards. In January this year UK unemployment fell to 7.1%, close to the threshold at which the Bank of England has suggested it would raise interest rates. There are concerns though that the manner in which this low rate of unemployment has been achieved owes much to a rise in part-time employment and the popularity of temporary contracts, whilst at the same time there is a generally higher level of job insecurity in the market together with falling productivity. Added to this, the pattern of falling unemployment is far from uniform and pockets of high unemployment are particularly prevalent in the North of England, the inner cities and amongst young people. What does it mean? It may be a exible labour market that has led to the rapid fall in unemployment but jobs are still jobs and higher rates of employment will boost household incomes and improve consumer sentiment. Worryingly low levels of productivity mean that wage growth remains sluggish, however. Housing market momentum, but fears of a house price bubble. A dramatic fall in unemployment, but is that the whole story? 8. Economic update Page 8 2014 Looking ahead ... Easter March 2014 2014 Webloyalty & Conlumino enquiries@webloyalty.co.uk | 020 7291 8720 The economy and consumer sentiment Key economic indicators 2014 compared to 2013 Economic indicators 2013 2014 Gross Domestic Product growth (%) 1.4% 2.4% Since the end of 2012, the economy has shown some signs of life with modest GDP growth and a rise in consumer sentiment. While this appears to be sustainable, and is welcome, the magnitude of the pick-up is shallow. Unemployment (ILO denition Q4%) 7.6% 7.1% Despite pressures on government expenditure having a negative impact on public sector employment, there are signs that, for the time being at least, the private sector is largely picking up the slack. Ination (CPI annual %) 2.6% 2.4% Persistently high ination, particularly for food and energy, which represent such a signicant proportion of overall consumer expenditure, will continue to put household budgets under pressure. Interest rates 0.5% 0.5% With the recovery looking shallow, interest rates are highly likely to remain stable for the foreseeable future. Disposable income -0.2% 0.3% While wage growth continues to pick up, disposable incomes continue to be held back by high ination. 9. Economic update Page 9 2014 Looking ahead ... Easter March 2014 2014 Webloyalty & Conlumino enquiries@webloyalty.co.uk | 020 7291 8720 The economy and consumer sentiment However, views on personal nancial circumstances have not fared quite so well. Notably, in recent months, views on the overall economy have become stronge...