The holidays, they're here.
I'm not surprised.
I feel like I've been buying Christmas presents for the last seven months. But and yet I sound surprised.
I had a strong start, but now I've got fatigue.
Now I'm tired of it.
I think I better return to it once this podcast is finished, and once the readout is written, I won't multitask.
But I find it so interesting what is happening at Christmas with spending is often a kind of canary down the mine or a sort of indication of the economics of the coming year, and obviously there were likely to be an election in that year, and it's just interesting, I think also because people get together with families from different generations, and I think it's probably that moment when voters start to say, yeah, what am I What am
I going to do with my vote this year? If they're swing voters, which a large large number of people are. So I think, you know, I'm really looking forward to hearing from Andrew and Katie because their copy as well inside Bomberg, is always point. It's always one point, and it always tells you something about the psyche of the of the nation.
Yeah, and they have different perspectives. So we'll talk a little bit about luxury, we'll talk about retail, we'll talk about the high street, but we'll also talk about food, which is such a you know, prominent important.
Christmas.
Yeah, welcome to In the City, Bloomberg's podcast, connecting you to the conversations and the stories shaping the world of finance. I'm froncing like wow with a Legra Stratton and this week we talked to Andrea and Katie to try and really feel the temperature for shopping across the UK. We're delighted to be joined by Andrew Felstad, Bloomberg opinion columnists covering consumer goods and the retail industry, and Katie Lindsel, Bloomberg UK retail reporter. So this is like a dajavoo.
We did this exactly twelve months ago and everyone was excited about Christmas because there was like revenge Christmas and people after two very long years of lockdown, we're going to get together. This year just feels a lot different.
Yes, I think, I mean lockdown is still in our living memory, so I think people do want to get out and shop, but we've had a really ongoing cost of living crisis now, and so people are really looking at how much they can spend. And I mean my view is that it's going to be a bit of a doom and gloom one. I don't know if Andrew is quite so so negative as I am, but already we've seen November sales were weaker than people hoped, so I'm a bit negative on this one.
I don't think it's going to be a spark club, but I don't think it's going to be a stinker either. It's going to be kind of fair to middling. Last year, I was absolutely convinced it will be a good Christmas and it turned out to be so because, as Katie said, it's the first year for three that we didn't have any COVID restrictions. This year, I'm not quite so optimistic. On the plus side, we haven't got as many strikes
as we had this time last year. If you look around this time lat year, it was actually snowing, always bad for football. Inflation is coming down, so that's that's all pretty good stuff. On the negative side, as Kate said, the cost of living crisis has not gone away, and on heating we're not getting the government support. Plus interest rates are probably more of a worry this time for this Christmas than they were a year ago, So a
bit of a ho hum Christmas. It's not ho ho no, but it's not ho ho hooray either.
What we're here for. Can I just ask a question, which is is that sort of lockdown is still in people's memories? Does that effect buying? Is it effect buying because they've still got some COVID savings saved up? Or does it affect buying because people are actually thinking, oh, I remember two years ago when we couldn't leave our houses. I'm going to go and shop.
How does it?
How does it?
I think the COVID savings really started to be eroded by now. That's something that retailer's really kind of erode on over the past year or so, saying, even though we have this terrible inflation, people really saved over COVID. I think now the key comparison to make is that people are really getting out to shops. You know, we're yet to see how much they're spending when they're in these shops, but when you're around London and some of
the key shopping districts, it is busy people. People can get out now with less of a fear of a pandemic, and they're in restaurants, they're in bars, they're in all the all the kind of great shops of London. So that's really encouraging. And online has come back a bit. Having said that, you know, I think online will still have its time over Christmas. I personally am going to
be glued to my screen doing boring online shopping. But yes, I think I think the pandemic is still a key comparison period.
I think there won't be that automatic lift that we got last year because everybody was out seeing family and friends. Again. I just don't think we're going to get that surge that we automatically got, so retailers, restaurants, they're all going to have to work harder for everything this year.
So what are people buying? I mean, what do people not want to buy?
I think gifting is the key area where spending is actually coming back a bit so PwC their figures for spending over the Christmas season is thirteen percent down at twenty billion, So really it sounds bad on the part of consumers, but it's an area where if you have people, you don't have to gift to don't. If you have people who you do love a lot, you're going to be spending gifts on them, but you might spend a
little bit less. Having said that, Black Friday wasn't the big boom that was hoped, it's kind of turned more into a Black November, and the British Retail Consortium said it got off to a really good start that sort of Black November, and then kind of fizzled out towards the end. So I think people are being a bit more frugal with their gifting and really being quite quite careful with where they spend their money.
And I think the other area that's really suffering at the moment is big ticket items, you know, any big other than holidays, which still seems to be doing well, but sort of Home Renovation's home furnishings. Even Halford said that people weren't spending on expensive bikes as much now. One thing that I thought was really interesting last year the big gift was the dice in air wrap. This
year we've seen like one hundred pounds off. It's back to full price or nearly it's normal four hundred and eighty pounds price in many places, but it's still that was a big discount on an expensive purchase. So I think it's those big where you have to spend out a lot of money that are really being rained in.
Yeah, like watches and jewelry, these items that you might think would be a go to for gifting at Christmas. People aren't really pulling back on those treats.
So they're pulling back on the big amounts. But are you seeing that there's more smaller amounts that's sort of spreading the love more.
I think it's hard to know. I mean if we look at sort of fashion, I think that's going to be a tricky area over Christmas. Makeup, makeup, Yeah, we talk about the lipstick index, don't we in this kind of economy, So I think people are going to be going for sort of affordable beauty items, affordable clothing here and there. I mean one of the items that I hear is doing very well is this thing called a snuggle hoodie, which is yeah, absolutely because sort of snuggly
fleecy goes over your head, covers your whole torso. And I think there's also a reader cross here to energy bills. You know, if you if you can kind of turn down your heating a bit and being your snuggle hoodie. That's that's the way to go, and they're not very expensive.
I think Katie's touched on something really important here looking back on this year, it's been much better than people have expected. I mean, next said that the consumer had really defied gravity this year, and I think Katie's exactly put a finger on why, because we've all adapted. So we've worn a snuggle hoodie indoors but turned our heating down.
We've shopped in audi your liddle or we've bought own label products and we've we've really adapted to the situation, which is why consumer spending has been so much better this year than I predicted backing back last year.
My favorite is the electric heater, the mattress topper, which I brought.
Quite a few of.
What is that which I need in my life?
You have to my kids put it on three and then when they're asleep.
I have to go and kind of cooking.
But what so we saw recent I think it was last Friday, we saw a survey of the electro is not the electric of consumers and their expectations of inflation are that it comes down. How does that? How does that What do you think with your expertise, what does it impact your.
Be I think it is going to come down. I think food prices are going to come down. And my prediction for next year as we get a supermarket price war because and the way this will happen is through promotions. Because the branded, the big branded manufacturers have ceded a lot of volume to private label and they will want to try and claw that back. They don't want to necessarily reduced prices, but you will see a lot of special offers and the supermarkets will fight for those sales.
And the way that they'll do it is through their loyalty cards. The other really interesting thing about food is when inflation is rising, everybody can win because everybody's seals goes up when it comes down, particularly if costs are still going up, like we've got the minimum wage going up, they all have to fight for share and what they need, they need like weak players to feed off. And at the moment we've got two We've got Morrisons, we've got Asda,
both in private hands. So I predict a supermarket price war to put pressure on Morrison's and Asda. So I think that will feed into bills next.
Year, and what's happening with John Lewis well, and they're in the shape with Waitros and how Waitross are the pointing. I mean, it depends if we look at John Lewis. I think this Christmas is so crucial and we won't hear from the mental march to know how it's gone. But really, you know, they need to really show their strength in this environment, and online is quite key for John Lewis, and I think they're you know, they're competing with the likes of Amazon, who can get the delivery
to you the next day, and it's really tough. Going to Andrew's point about the supermarket price war, I think Waitros is in a really weak position. They desperately need some funding to invest in their stores and pull in shoppers. And I think a lot of those high end shoppers who are doing relatively well through the cost of living
crisis are going to mines instead. Christmas is the kind of time of year when waitress should be really getting shoppers in through the door for canapees and party treats and all that sort of thing, and I think it's it's yet to be seen if they manage that this year. So it's going to be really tough.
Okati, you said, it's a shame we have to wait until March. I think you said for John Lewis or what what happens if it's been a bad Christmas.
Well for the other retailers, we get lots of January updates, so we do find out relatively soon on how their trading has gone this time last year. Well sorry, January last year we had lots of the supermarkets, as Andrew said, with with the impact of inflation, lots of super markets coming out saying oh we had a record Christmas. You know, shoppers really spent with us. Of course they did. Because prices are so high in food, we're all sort of
spending more to get less. I think this this coming January, with this with food, it's going to be another story of a bumper Christmas of spending. I think Kantara are forecasting thirteen just over thirteen billion pounds of spend, a record. So yeah, we will we will see how things go in the early New years. There's a record because it's more expensive, it is, yeah, and also, of course food is a necessity. We all have to buy it at Christmas.
We trade up, we buy the more premium items. Even if you're still sticking to your Algie and you're little, you're buying your more premium items within those supermarkets. So it should it should go well in that sector of retail.
We had loads of supply chain issues, didn't we last year? And I remember mind Christmas presents in like October. Cxandra came on TV and said, you know, it's going to be really difficult to get a hold of Lego. We didn't have any of that.
No, that's really gone on, what that's really gone away now? Yeah, And that's I think that's one of the reasons why we or quite a lot of discounting on Black Friday because last year, Yeah, last year we've you know, we had like, you know problems, and you know, I think the year before was a really bad one. Last year it was coming to an end. And also people had like a lot of stock last year because they they bought,
they'd bought loads early. So I didn't think that we're going to get it supply chain eased up.
It all arrived, particularly.
In the US, just when people were you know pulling in the purse string, so they were all stuck with too much stock. So no, we I think the supply chain is pretty much back to normal this year.
How's the luxury market doing? I mean again the price up. You know, they've been able to bump a Pricer so much it's almost a little bit of scene exactly.
Luxury is really slowing. So it's taken a while. But as with many of the as many as with many of the pandemic spending habits, it's taken a really long time for them to unwind. But it is really unwinding on luxury. As Katie mentioned, those pandemic savings, we had nothing else to do without our money. So a man, it was a rolex. For a lady, it was a new handbag that really powered the luxury market. That's really unwinding. And I'm not optimistic that the Chinese consumer is going
to come back and save the day. Because obviously the Chinese VIPs treated very well at home. Now all the brands have wonderful stores, wonderful service in China, the middle class are going to be under pressure from the weakening economy plus the inflation in flights, hotels, that sort of thing. I'm not convinced Chinese consumer is going to ride back to Europe and spend and particularly the UK is very difficult in that market because of the loss of tax free spending.
Yeah, when you talk to luxury retailers in London as well as hoteliers, high end restaurants, they are really, you know, upset about the fact that we have this so quoted tourist tax. This is the time of year when you would want wealthy foreign shoppers to be coming to London.
And I was in Selfridges recently. I mean it still looks fantastic, are still packed with shoppers, but really it's not the kind of Christmas that we've had in previous years because people are choosing to spend in Paris and Milan. You've even got British shoppers buying their barbery and their mulberry outside the UK because it's cheaper. So it is a very tough environment there.
So can I ask you sort of helicopter view question having you both talked in amazing granularity about British shoppers, but really fundamentally, do you think people will be feeling comfortably off this Christmas or really under it under pressure? What's the sort of macro picture, Because the reason I asked the question is I sus. You know, the government's view is if people in the months prior to an election feel all right, then that's the sort of decent
basis on which to go to the electorate. So it's not actually a kind of many years previous comparison people make. People don't think like that. People think, do I feel a bit better than last Christmas? Basically, I think.
It's going to really depend who you are, what your income is, do you have a mortgage, how much of your spend do you spend on essentials. It's you know, I think older people have done very well this year with you know, many of them don't have mortgages. They've seen their pensions go up, they've seen their investments go up for the first time they're actually getting a bit of return on their savings. But I think younger middle life families will be really suffering from the interest rate rises.
You know, school fees have gone up like massively. If you want a holiday, you're having to spend a lot more on a holiday, so I think, and then you've got the very lowest consumer that spends a lot more money on essentials have really been hurt by food energy, So I think I don't think you can say like one consumer exactly, of course.
I think the one thing, the interesting thing is that that older population, for that they've done very well. They do care about their children and their grandchildren. If they can see that they're having a difficult Christmas, it's not straightforward that they feel sort of smug.
The other thing I think, I think there's two things that really are going to matter as we're going to next year. One is the labor market and one is the property market. The labor market's calling doesn't seem to falling off the cliff. People make the biggest changes to their spending when they lose their job or when they see friends and family being made redundant. The housing market again, calling hasn't fallen off a cliffs. If you take those things,
it's not looking too bad. I'm not as pessimistic for next year as I was this time last year. And wages, wages are calling, but they're still above inflation and so really comes of holding up.
I think wages absolutely As you say, that's that sort of key thing and Andrew mentioned next earlier. I think M and S have also flagged this that going forwards, we need to look at how people are spending when they get their pay packets. I think next have been so strong this year, you know, for profit upgrades over the course of roughly the same number of months, because they were happily surprised by how much shoppers when they got their pay rise impacted by inflation, they were actually
choosing to go ahead and spend. But as we as the months go through and inflation continues to be a burden, that paypacket isn't going to mean as much as it did months earlier. So I think there could be times in twenty twenty four when it gets a bit tough and M and S guided to their strong performance being in the first half with the second half being a weaker environment, so we have to see going forwards how strong wages stand up against inflation.
Are there any retailers that we should actually worry about going forward?
KPMG have warned of there being casualties early next year. They said online only retailers are the ones to look at, and I think we have seen quite a lot of weakness in online only fashion, so I think that could be a really difficult environment. And in terms of the strength of the high street, you know, we already had some quite major calamities in twenty twenty three. I mean, Wilco is probably the main one to mention their biggest retail in Solvac since Wilworth's in two thousand and eight.
So Christmas always tends to weigh on certain retailers. So I think come January February it could be a busy time. That was perfect.
Thanks for listening to this week's in the City. We'll be back next week, but in the meantime, if you like our show, please head on over to wherever you listen to podcasts and rate, review and subscribe. It does help people find the show. This episode was hosted by me Francine Laqua and Alegra Stratton. It was produced by Summersadi and Tiffany Schoy. Additional editing by Blake Maples and special thanks to Andrea Felsted and Katie Linsel.