Data throughout the year has indicated that people are less willing to splash out on so-called “big ticket” items, whether online or on the High Street.
Whether this is being caused by a change in attitudes to consumption or to increasing worries about job security and income is not yet clear. Consumption assumes spending on basic needs and then discretionary spending on goods and services including leisure.
Influences on consumer spending
Clearly, consumers’ confidence in their current and future financial situations are a key driver in the willingness to spend at least in the short term.
It is influenced in part by the changing costs of expenditure on such things as housing, fuel, food, clothing and travel costs, which are monitored annually by the Consumer Price Index (CPI), where the weighted average of prices of a basket of consumer goods and services indicates the level of and changes to the rate of inflation in the economy.
This has left less for discretionary spending.
An indicator of spending on capital goods is this year’s fall in the purchases of new cars, attributed by the Society of Motor Manufacturers and Traders to weak business and consumer confidence, economic uncertainty and confusion over diesel and clean air zones.
There has also been a reduction in consumer spending on both the High Street and online which has contributed to the closures of High Street retailers, and reduced profits of online retailers such as Asos, whose profits were reportedly down 68% in the year up to October, altbough Asos attributed this to IT problems in its warehouses.
A study by the card machine provider Paymentsense at the start of the year predicted that over half (56%) of UK consumers were planning or considering cutting their spending over the coming year by cutting back on purchases of goods like new clothes (31%), sweets, crisps, cake and chocolate (27%), and switching to less expensive toiletries (18%). This was closely followed by spending less on jewellery and holidays which require a flight (both 17%).
This is not surprising given that research by KPMG and the Recruitment and Employment Confederation (REC) showed that the number of permanent job appointments fell in November as growth in the demand for staff fell to a 10-year low.
Employment in the manufacturing sector also fell for the eighth month in a row and the pace of job losses was the steepest since September 2012 according to the latest IHS Markit/Cips monthly snapshot.
It would be interesting to see how many people (mainly women) have lost their jobs in the ongoing carnage in High Street Retail.
At the same time, the Office for National Statistics (ONS) has reported that average household financial debt had risen 9% to £9,400 in the two years to March 2018. The biennial study showed that personal loans accounted for £35bn of total household debts, £32bn is from student loans, £25bn is hire purchase, and £22bn is on credit cards, while the remainder includes £3bn of overdrafts. Much of this, it has been argued, is due to increased living costs, such as rent, council tax and other bills.
It is fairly certain, therefore, that worries about the future and job insecurity are influencing consumer spending currently.
Having said all this, however, the recent Black Friday sales saw an average 7% increase in sales compared to last year.
This could be seen as a change in consumer spending to waiting to buy until prices are, allegedly, reduced.
It will take more than a year to determine whether a longer-term change in consumer spending habits is taking place, however, there are other factors at play.
Concern for the environment and global warming have risen to the top of the agenda, in particular for younger consumers, which has encouraged people to think twice about buying fast fashion and disposable and other plastic items.
Buying second-hand has been re-branded as “pre-loved chic” and the demand for longer-lasting household products such as fridges, washing machines and the like has prompted the EU to regulate that manufactures must stock spare parts for ten years for such items.
Then there have been the movements encouraging people to buy from local independent retailers as well as the rise of local groups specialising in helping people to repair household items such as small kitchen appliances.
Guy Moreve, CMO of Paymentsense, said “…. our study reveals that instead of aspirational health or lifestyle goals many UK consumers are increasingly concerned about just keeping up as living costs climb more quickly than salaries.
“Another growing trend is ethical consumption, and over 2018 we saw increased awareness and attention to environmentally friendly lifestyle habits such as veganism and sustainable fashion. We feel that this coming year will see continued movement in this area, as more people adopt ethical attitudes.”
Time will tell whether the “shop till you drop” love affair is finally over and there is a sustained change in consumer spending.