With energy prices soaring, few houses will be fully illuminated during the festive season. Don’t expect glowing reindeers on lawns or Santas on rooftops. Up and down the country, these holiday features will likely be absent this year.
But don’t think Christmas trees will be totally stripped of their fairy lights. Despite the dire predictions, Brits will try to make the most of the holidays, bringing some much needed comfort to the retail and hospitality industries.
On Friday, regulator Ofgem raised its price cap on domestic energy bills to a record £3,549 ($4,167), meaning households will pay almost triple to heat their homes this winter. On top of that, costs for other essentials are rising — grocery prices were 11.6% higher in the four weeks to Aug. 7, according to Kantar — and inflation is outstripping wage growth. Homeowners must also contend with rising mortgage costs for the first time in many years.
The Asda Income Tracker, which measures how much money households have left after taxes and paying for essential items, such as food, transport, energy and housing, fell by £40.21 per week in July, compared with the year earlier period.
This slump is weighing on both consumer and corporate confidence. Retail executives expect this autumn to be extremely difficult as higher energy bills kick in. Many people have also spent freely this summer, either vacationing abroad or making the most of Britain’s heat wave. Now those credit card bills are landing on doormats.
But there are several reasons why the Christmas shopping period may not be as bad as feared.
The last two festive seasons were disrupted by Covid outbreaks. Although a lockdown was avoided in 2021, the omicron variant wreaked havoc on plans to visit family and friends and dine out at restaurants. Of course, much still depends on whether there is another spike in cases over the winter. But assuming Covid is under control, there is likely to be an element of “revenge Christmas” splurging this year.
Brits still have some lost celebrations to make up for. Parties and weddings are likely to continue into the winter months, maintaining demand for dressing-up attire.
Despite some signs of cooling, the labor market remains strong. And even after vacations, some higher earners will still have pent-up savings to cushion them from the cost-of-living crisis. Others may turn to credit cards to sustain their spending.
Consumers also tend to protect Christmas. When life is a struggle, people try to make the holidays a brief respite from their woes.
There’s one more significant factor at play: The World Cup will be held in November and December for the first time. Depending on how the national team performs, this could encourage some festive football get-togethers. (Major sporting events are traditionally good for TV sales, but since big-ticket items are often the first to get scaled back during times of economic anxiety, retailers such as Currys Plc and AO World Plc may not be able to count on such a boost.)
This doesn’t mean Brits won’t make changes to their habits. Many are already cutting back and shopping only when they need to. For example, this back-to-school season, more families waited until closer to the start of the term to buy uniforms, backpacks and binders, rather than stocking up in advance. Expect to see a similar pattern when it comes to Christmas, which means late, volatile trading for retailers.
Even though many people will be seeing friends and family for the holidays, they may cut back on gifts. If households feeling the pinch have to prioritize children’s presents, that will mean fewer gifts for adults. Frivolous items will be out too, as they were in 2008 and 2009 when the world was in the grips of the global financial crisis. It doesn’t help that many products, from clothing to tree trims, will be more expensive. Forget that Christmas jumper or chewy toy for your dog.
When Brits do buy, they are likely to trade down and shop around, in Christmas essentials, such as wrapping paper, and in food. The UK arms of the German discounters, Aldi and Lidl, are likely to be winners of this shift. Of the big four British supermarkets, Tesco Plc, with its pledge to match Aldi’s prices on hundreds of items, currently has the most momentum. If it can keep this up through the autumn, it could have a good Christmas too.
When it comes to non-food products, the trends bode well for cheap home-furnishings store Dunelm Group Plc and Associated British Foods Plc’s Primark.
But the main swing factor for all retailers and restaurants will be whether the government steps in with more support for families struggling with energy bills. Brits spent lavishly throughout the summer partly because of the weather, but also because they expected another round of relief.
If no further support is forthcoming and employers begin to announce redundancies, then things could become much worse.
January and February are always lean months for store chains and the hospitality industry. With the next energy price cap due to be announced in January, just as December credit-card bills arrive, early 2023 could be particularly grim.
For now, though, it looks like those Christmas tree lights will still be twinkling.
Bloomberg
