Despite recession, retailers can be optimistic

Wednesday, 03 June 2009

It has been a rocky 18 months, characterised by a decimated high street and a crumbling pound. But as 2009 marches on, brands and retailers can learn much from the British public's response to last year's alarming trends, says Richard Bussy, Consultant, TNS.

TNS measures UK consumer confidence on a monthly basis, through the Nationwide Consumer Confidence Index (NCCI). This Index stayed broadly steady in the run up to October 2007, but changed sharply in November when Northern Rock collapsed.

Since then, confidence has fallen steadily, dropping from 94 points in October 2007 to just 49 in December 2008.

The NCCI is made up of a number of sub-indices, one of which is the Present Situation Index, which looks purely at consumers' feelings about the economy and the labour markets at the current time.

Another is the Expectations Index, focusing on consumer confidence in the two markets in six months' time. Both of these give retailers useful insights to help predict changing spend patterns and to plan for an upturn.

The Present Situation Index reveals that certain major events jolt consumer confidence - last spring's economic uncertainty and the higher cost of food and fuel took the Index to the then lowest levels ever recorded. On the retail side, the collapse of Woolworths gave the index another major hit in the autumn.

Comparing these falls to the Expectations Index gives us a clearer picture of how consumers respond to less immediate news. The biggest rise in confidence about the future economic and labour market situations was reported in October 2008, when consumers were told about VAT cuts.

Since the turn of the year, the NCCI has stabilised and started to show signs of recovery, suggesting that the doom and gloom could finally be coming to an end. This can largely be attributed to increased confidence on the part of consumers in the UK's future economic situation.

At the start of the year the percentage of consumers thinking the economic environment will be somewhat or much better in six months time remained relatively unchanged, moving from 17 per cent in January to 19 per cent in both February and March, but in April this increased to 26per cent, meaning more than a quarter of UK consumers now think the economy will be in a better state in 6 months time than it is in today.

However we are also seeing growing numbers of consumers starting to believe that the economic landscape in six months' time will be neither better nor worse, moving from 27 per cent in December to 41 per cent in April. Stability is the first step to recovery and it is clear that consumers are starting to feel that we are in a stable environment - which is good news for retailers.

The NCCI also monitors how happy UK consumers are to make major purchases of household items such as white goods. This is possibly the best measure to demonstrate the true extent of the nation's financial worries and shows how high street sales and widespread discounts have been received by consumers.

Interestingly, the pattern shows that as the other Indices fall, confidence in spending increases, suggesting that consumers are attuned to the difference between being offered great deals on a plethora of items - from houses and cars to TVs and fridges - and actually purchasing any of these items.

Confidence in spending was clearly shaped by the effects of the end of year sales. From November 2008 to January 2009 the percentage of consumers saying it was either a good or a very good time to make household purchases shot up from 28 per cent to 50 per cent, demonstrating that consumers were aware that events such as the Woolworths liquidation sales, the major discounts we saw on electrical goods, as well as other reduced purchases represented a great opportunity to buy.

Eighteen months ago, when Northern Rock was still in the headlines, only 14 per cent of consumers saw a good opportunity to make major purchases like houses and cars, compared to more than triple the amount (42 per cent) in April 2009. This spells good news for retailers: if the confidence in spending is there, communications that address consumers' remaining concerns hold the key to converting this confidence into actual purchases.

We can conclude that consumers still have an open mind for 2009. 2008 will be remembered as a year of negativity, when confidence fell to its lowest ever levels. Now we are slowly starting to see the light at the end of the tunnel. However, positivity is not abound just yet: while consumers believe that the economic situation is not going to get worse in the next six months, they are also not thinking it will be more merry, but rather that it will not change.

At the same time they are increasingly thinking that now is a good time to spend, which is good news for retailers and marketers. Should the economy start to pick up soon, even just slightly, the feeling that now is a good time to make purchases could translate into actual behaviour and kick start a virtuous circle of confidence.

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