The outlook for a festive season like no other

Last Christmas, much of the UK was in a pandemic-enforced lockdown and people across the country were restricted from seeing loved ones or heading to the shops. It was a festive period like no other before it.

Assuming the UK’s vaccine-powered recovery is a success and there is no need for further lockdowns, Christmas 2021 – and the golden quarter of shopping that builds up to it – will map out very differently.

With pent-up consumer demand and savings for those in secure employment, and what will hopefully be widespread post-pandemic positivity, this Christmas has the potential to be a second consecutive unprecedented peak trading period – but, this time, for different reasons.

The industry always has one eye on the golden quarter. It is the time of year when most retailers make a huge chunk of their annual sales and, as such, deserves meticulous planning. The summer months mark the arrival of ‘Christmas in July’ when many businesses ramp up their festive plans and start revealing their holiday ranges.

It makes it the perfect time to assess consumer sentiment and forecast how Christmas sales will play out throughout the final quarter of the year.

What will be the balance between online and physical retail, considering the former’s popularity during the pandemic? What sectors will be in demand? And what can retailers expect from consumer shopping habits?

In what is an uncertain time for retail, this report, produced working with Board, ChannelAdvisor and PwC, answers those questions. The Christmas Forecast provides predictions and analysis for total retail sales in the fourth quarter, as well as sales forecasts by sector. We also predict online penetration and compare all data with 2020 and, importantly, 2019 – bringing some clarity to what lies ahead.

The data behind The Christmas Forecast

This report incorporates exclusive data from independent research consultancy Retail Economics, including forecast data for Q4 2021 and comparison data for Q4 2020 and Q4 2019.

Comparisons made throughout this report will refer to 2019 and 2020 – 2019 to give an overall picture of how 2021 will compare against the more traditional shopping peak and 2020 (predominantly in chapter two) to highlight how retailers can plan for Christmas this year against last.

Winning strategies

Retail Week has determined the five key strategies all retailers should focus on in 2021 and beyond in order to succeed in a market transformed by technology and shifting consumer attitudes.

Consumer confidence is on the rise after the Covid-19 pandemic caused sentiment to plummet in 2020 and there are some encouraging signs in terms of consumers’ willingness to spend as society reopens.

This bodes well for retailers as they reach the mid-part of the year and plans for the all-important Christmas trading period start to accelerate, but some sectors are expected to perform better than others.

Analysts talking to Retail Week assume the UK will not have any further lockdowns, the successful rollout of the vaccine will continue and other pandemic restrictions will have eased – and, if that is the case, there is much to be positive about.

The Retail Week data indicated that modest year-on-year growth in non-food sales (0.5%) is expected over the fourth quarter. Retail Economics chief executive Richard Lim predicts a “considerably more upbeat Christmas picture across key non-food categories” such as apparel, health and beauty, and toys and games.

The shape of Christmas changed dramatically last year as shopping was pulled forward, with October recording the strongest year-on-year sales growth for six years. It is expected that consumer fears surrounding product availability and delivery delays, which caused this sales pattern, will have waned by this golden quarter.

In the absence of lockdowns, and following significant online infrastructure investment by retailers, Retail Week’s data shows that sales will revert to pre-pandemic patterns, with retailers experiencing two peaks in Q4 trading – one at the end of November sparked by Black Friday and another in the week before Christmas.

Overall, a slight drop in retail sales is predicted this Christmas. This is largely attributed to an anticipated fall in food sales, with grocers and food and beverage retailers expected to find it hard to compete with 2020 levels, when food sales escalated in light of the closure of hospitality and leisure premises.

Longer-term comparisons are favourable, though. The Retail Week data predicts total retail sales in Q4 2021 will be up 1.8% compared with Q4 2019. Non-food is expected to jump 1.7%, driven by toys and games and a more buoyant homeware and furniture sector.

The main driving force behind this is that people are spending more time at home compared with 2019, resulting in consumers looking to improve their domestic environments or making their own entertainment – two trends that are expected to have longevity, even though hospitality and leisure facilities are likely to challenge for people’s spend again as the year progresses. As chapter two shows, this bodes well for toys and games and other home-based categories, while fashion faces more obstacles to growth.

‘A much better December than last year’

PwC, which has been tracking consumer confidence since before the global financial crisis in 2008, suggests that public sentiment is moving towards positive territory after a significant drop in 2020.

In the golden quarter and the run-up to Christmas last year, consumer confidence levels stood at -26 and are now at +10 – “the highest level since we started the Consumer Sentiment Index,” notes PwC UK leader of industry for consumer markets Lisa Hooker. 

This increase comes despite the enforced delay to the easing of all restrictions announced by the government in June.

“It’s fantastic to see consumer sentiment remain buoyant as we begin to emerge from the pandemic and as lockdown restrictions continue to ease. The record-high levels of optimism we saw in the spring have been sustained, with only some category spending intentions waning slightly as people adopt a more measured approach to spending,” she says. 

Hooker adds that “the high levels of consumer confidence across all age categories appear to be driven by the success of the vaccination rollout”.

These findings should make for a much better December than last year. However, Hooker adds a note of caution.

“Consumer optimism here must be balanced against the impact of any remaining restrictions in place and the tapering of government financial support, which may see some demographics struggle disproportionately,” she says.

“There is a potential for the wealth divide to be exaggerated by the continued use of zero-hours contracts, the end of the furlough scheme and increased interest rates.  

“Perhaps, more importantly, and despite high sentiment levels, consumers now have increased choice over where to spend and what to spend on as all restrictions are lifted. Retailers and operators will still have to work hard to persuade consumers to spend with them this Christmas.”

Moving parts

As society and the economy reopen after the pandemic, there are a lot of moving parts, which makes it challenging but not impossible to predict golden-quarter spending.

Both Hooker and Lim believe the impact will be felt unevenly across different demographics and age groups, as well as regionally.

There are proven links between consumer spending on the hospitality and leisure industry and spending in retail stores, so the success of the former will play a role in retail’s success in 2021.

There are two schools of thought on which way this will pan out in the final quarter. On one hand, experts are predicting that footfall will decline, while others are forecasting an increase.

“The nervousness will play on people’s minds, so footfall will be down from two years ago,” says Lim, though he acknowledges that less densely attended sites, such as sit-down restaurants, should do better than bar venues.

Hooker says that where consumers spend depends a lot on the wider restrictions on leisure and travel: “Hospitality helps footfall and drives a reason to spend in categories like apparel but if you’re spending on a holiday then you might not be spending on a sofa.”

Springboard, a consultancy that measures footfall in retail destinations across the UK, is confident that shopping centres will experience an upturn in traffic this golden quarter because of the mix of leisure and shopping they provide.

“As we move towards Christmas, shopping centres seem to see bigger increases than high streets because they have the concentration of large stores,” says Springboard marketing and insights director Diane Wehrle.

“The newer centres have great dining, too. Shopping centres will come into their own because they weren’t available last year – they lay on great events and they are going to go big on decorations.”

This will pull people in during 2021 because consumers were starved of this “sensory experience” last year, Wehrle adds.

Springboard’s data shows that since lockdown measures started to lift from April 12 and non-essential shops reopened, footfall has been steady at best, following an initial leap.

Retail parks have remained robust, as they did at the height of the pandemic, and shopping centre footfall is gradually on the rise, which bodes well for peak trading season.