Posted: 28/10/2022
Over the last two decades, UK consumer spending on Halloween has gone from just £12 million to a predicted £687 million – an almost 60-fold increase. While nowhere close to America’s predicted spend of $10.6 billion, in the UK Halloween is now the third biggest shopping event for supermarkets, following Christmas and Easter, and in a reported poll, 68% of respondents planned to purchase sweets for visiting trick-or-treaters this year.
However, the enormous range of novelty items generated by Halloween also creates concerns. Four in ten Halloween costumes are only worn once before being thrown out, creating almost 2,000 tonnes of plastic waste, while environmental charity Hubbub estimates that 22.2 million pumpkins will be thrown away uneaten.
On a brighter note for pumpkin fans, come 1 November they are likely to be excellent value at the local supermarket.
The UK government has reversed its decision to bring back VAT-free shopping for overseas visitors to the UK, in a move which the Digital, Culture, Media and Sports (DCMS) Committee of MPs has described in a new report as ‘short-sighted and incredibly damaging’.
The VAT Retail Export Scheme was originally scrapped in January 2021 as part of Brexit, but former chancellor Kwasi Kwarteng announced plans to reintroduce it in late September this year. However, following widespread criticism of Mr Kwarteng’s policies, and his departure as chancellor, it has subsequently been announced that VAT-free shopping is one of several policies to be dropped.
This is disappointing news for UK retailers, particularly those catering to high-income travellers. There are renewed fears that wealthy tourists will instead choose to spend their money in other European cities where VAT-free shopping is available. Walpole, a body representing the UK’s luxury retail sector, has estimated that the reversal of the scheme could lead to the sector missing out on up to £1.2 billion in direct retail sales. Paul Barnes, chief executive of the Association of International Retail, described the decision as “a hammer blow to UK tourism and the British high street.”
Meanwhile, DCMS chair Julian Knight says that “flip-flopping” on the policy is “symptomatic of an approach that lacks thought and recognition of the huge importance of retail to inbound tourism” in the UK.
With rising inflation, Europe’s foreign policy issues and a cost-of-living crisis, it seems like the perfect storm for a recession. Retailers are feeling the effects of consumers prioritising their spending, with British retail sales falling in September, and a further fall expected in October.
However, it seems that some are set to weather the storm better than others. LVMH, the world’s largest luxury group, saw revenues rise by 19% in the third quarter this year. Kering also saw strong revenues in the first half of 2022. A study published by Bain & Company shows that the luxury goods market has seen strong growth this year, despite macro-economic challenges, and predicts that the market will continue to see strong performance.
It is often considered that luxury retail companies are relatively recession-proof and sheltered from economic slowdowns. The rich tend to feel the effects of a recession much less, providing a cushion of wealth that luxury retailers can rely on. Pedraza of the Luxury Institute said that large luxury brands count on just 20% of their customers – the very wealthy – for the majority of sales, and this group is more inflation resistant.
The Covid pandemic also saw the wealthy spending less on travel, so their disposable income increased. Equally, many brands – including Chanel, Gucci and Hermès – have continued to sell more to the emerging middle classes, benefitting from continuing global wealth and aspirations to have the ‘right’ designer goods. If the rich are affected less by the cost-of-living crisis, they don’t need to economise on shopping.
Yet it remains to be seen whether demand for luxury products can remain high, or whether consumers will opt for cheaper options. Shares in LVMH have in fact fallen 16% this year, with Hermès and Kering also seeing falls of 19% and 37% respectively. Whilst LVMH is supposedly not planning to cut costs with the key shopping season coming up, there are somewhat contradictory reports that they will be lowering the thermostat in their stores this winter, and staff have been told to take the stairs instead of the lift, as part of efforts to reduce their energy bills. Perhaps it is too early to tell whether this year’s economic events will have any impact on the luxury sector in the near future.
For now, it seems that luxury companies remain stable compared to their mass-market peers in an economic downturn. Luxury consumers tend to be more loyal. The question is whether there will always be clientele willing to pay a premium for exclusive brands.
While it’s often commented that Christmas products appear in the shops earlier every year, this year the phenomenon is demonstrably true. In the wake of the cost of living crisis and increasing uncertainty, the retail industry is taking a revised approach to the run up to Christmas, in order to protect what is traditionally known as the ‘golden quarter’, the last three months of the year when most retailers tend to earn the majority of their profits.
A number of fashion retailers are launching their Christmas products earlier than usual so that consumers, concerned about what lies ahead financially, can spread the cost over a longer period. Ron Feldmann, CEO of BrandAlley, noted: "…significant Christmas trading across August and September, which was earlier than usual. We normally launch our Christmas range at the end of August and we’ve brought it forward this year to 19 August. People are looking for presents early…”
In addition to financial uncertainty, concerns over availability could have also played a part in retailers making sure they stocked up early. The on-going strike actions by mail postal and port workers covering peak Christmas delivery times have increased fears of delays to supplies and impacts on Christmas trading.
The Christmas elves may have been busy, but will the shoppers come? According to research by Retail Economics with retail technology firm Metapack, almost 60% of British shoppers are saying they will cut back on non-food spending over the next three months and are expected to spend £4.4 billion less on non-essentials, which is down 22% on the same quarter in 2021.
Clothing and footwear sales rose over the summer as socialising made a comeback, with consumers dressing for special occasions. For the ‘festive’ season, however, some retailers are prioritising winter warmers over partywear, expecting consumers may feel less able to splash out, and more like wrapping up in the face of rising heating bills.
Ben Fletcher, CFO of the Very Group, however, takes a more positive stance. He hopes the summer’s boost in fashion will continue into Christmas. He said: “Because it's been so difficult and challenging, Christmas will be so important to our customers, not just for their family, but from wanting to be able to celebrate together. And that's what we're seeing more broadly.”
It remains to be seen if this means Christmas has come early after all.
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