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Consumer Confidence and Purchase Behaviour in Q4 2019 and Beyond

The Deloitte consumer confidence index measures an average of the net % of consumers who said their level of confidence improved in the past three months for six individual measures of confidence (Household disposable income, Levels of debt, Job security, Job opportunities/career progression, General health and wellbeing, Children’s education and welfare)

In Q4 2019, the index recorded a slight gain (0.5%) compared to the previous quarter and the same period a year ago. Despite expecting a seasonal downturn in confidence, we are actually entering 2020 with higher levels of confidence than a year ago.

The fact that confidence has remained more or less flat is encouraging in Q4 2019, as historically there has been a fall in confidence at this time of year. ​The clear result of the December UK General Election lifted some of the uncertainty that had been pervasive since the 2016 referendum and could have also boosted consumer confidence. Our survey, which took place during the first weekend of January 2020, indicates that over the last three months consumer confidence in the state of the UK economy strengthened from -55 per cent in Q3 2019 to -28 per cent in Q4 2019.

Retail sales

The ONS (Office for National Statistics) reported weak December retail sales. The data paints a picture of tough trading conditions for retailers in the run up to Christmas, with Q4 2019 down on the previous quarter both in value and volume terms. These results follow a difficult year for the sector, with more retailers going into administration and big department store sales slowing. Structural challenges around cost and competition continue as reflected by the high levels of promotional activity.

Online sales

Online spending now accounts for 21% of all retail spending. Meanwhile, online retailers continue to report strong growth, outperforming the high street. Online spending grew at eight times the rate of in-store sales growth in December. This growth has been driven by marketplaces but also by substantial change in consumer behaviours, in particular among those who were born in an era when online shopping has always existed, and the expansion of the direct-to-consumer (D2C) model.

Our research shows that many of the large discretionary categories and most of the leisure categories are bought online. This is driven by consumers seeking additional information on the product or service as well as to compare prices to get the best value possible. Some of the more commoditised categories are more likely to be purchased in store as they tend to be more unplanned purchases.

For Beauty and Personal Care, in store spending is still the preferred retail channel, with 50% of purchases made from a store on the high street or in a town centre.

Looking forward

Consumer spending expected to slow in Q1 2020. Consumers intend to spend less in both discretionary categories and essential categories over the next three months.

While consumers appear much more optimistic about their own personal finances, this has yet to be reflected in increasing levels of consumer spending. Indeed, in a sign of tough trading conditions for retailers, retail sales were particularly weak in Q4 2019 with fourth quarter sales down on the previous quarter both in value and volume terms across almost all sectors. However, online continues to show strong growth, and some retailers still delivered a solid performance considering the structural challenges around cost and competition.

Retailers are now looking ahead and there is a real opportunity for retailers to attract new customers as well as retain loyal customers through continued investment in their online and in-store experiences.

The Red Tree is the UK’s leading international beauty brand consultancy and a powerhouse of ideas, insight and inspiration. For an informal discussion on how we might help you, please contact us.

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