EY UK Future Consumer Index: Consumers cut back spending for Christmas as cost-of-living crisis intensifies
As Black Friday approaches, the latest EY Future Consumer Index finds that nearly half of UK consumers (43%) expect to spend less over the festive season compared to 22% for the same period last year.
The 11th edition of the survey of over 1,000 UK consumers found that falling consumer confidence due to the cost-of-living crisis will have an impact on a number of Christmas spending habits. Over one-in-ten (12%) shoppers said they will be cutting back on celebrations and expect to have smaller events this festive season, more than one-in-four (29%) are planning savings on food, while nearly one in three (31%) expect to spend less on alcohol.
Present giving will also be affected, with 43% of consumers planning on cutting back on gifts for friends, and 34% planning on cutting back on gifts for family.
The survey also found that consumers are increasingly likely to do their bargain hunting in store this year, although online shopping remains key with two-fifths (41%) of shoppers planning on doing most of their deal hunting online this year.
Silvia Rindone, EY UK&I Retail Lead, comments: “In the face of rising inflation, rising energy prices and rising interest rates, consumers are being cautious in the run up to Christmas. Our survey shows that consumers are concerned about saving and affordability and are making more considered choices about what they spend their money on.
“This year, consumers are likely to delay spending as late as possible to manage increased uncertainty about their finances. But with heavy discounting from major retailers starting very early, retailers are trying to tempt shoppers to bring forward their Christmas spending. Consumers are going to be focusing less on indulgence and more on usefulness, so retailers and brands will need to ensure they have the right products in stock for smaller, more close-knit events and thoughtful gifting.”
Consumer confidence at all-time low
The EY Future Consumer Index surveyed UK consumers just after the mini-Budget in October and found consumer confidence at an all-time low, with just 26% of respondents saying they are confident about the future, down from 50% in June. Sixty-nine (69%) per cent of consumers said they did not expect the economy to recover in the next twelve months, up from 31% in June, while 43% of consumers expect to be financially worse off in 12 months.
As identified in the last edition of the survey (published in June 2022), there continues to be a widening gap between cash-strapped consumers watching every penny and those who are willing and able to spend if retailers can entice them to do so. High-income consumers are more than three times less likely to see themselves as being financially worse off this time next year (14%) than low-income consumers (51%).
Silvia Rindone said: “As consumers look to cut back spending, retailers and brands will need to understand the price sensitivity of their customers and react accordingly if they want to continue to win spend in the run up to Christmas. Navigating this K-shaped consumer profile will require retailers to cater to financially resilient high-income consumers, while also appealing to mid- and low-income consumers with value-focused ranges and pricing that reflect their budgets.”
Tighter budgets won’t stop shift to conscious consumerism
With nearly seven-in-ten consumers (67%) ‘extremely concerned’ about the rising cost of living, up from 60% in June, shoppers are now implementing a raft of measures to cope, including cutting back on spending across all categories and increasingly shifting to private own-label alternatives.
More than half (52%) of consumers surveyed said they will spend less on big-ticket items such as furniture, up from just over a third (39%) in February, while 47% say they will spend less on clothing and the same amount will spend less on consumer electronics. Forty-two (42%) per cent are planning on reducing spend on holidays and 41% on home improvement products and services.
The survey also finds that responsible consumerism is still a key consideration for shoppers, with more than three-quarters (79%) saying they don’t feel a need to keep up to date with the latest fashion trends and more than two-thirds (68%) saying they would prefer to repair than replace.
Silvia Rindone added: “While affordability is a major concern for consumers, they still want to do the right thing from a sustainability perspective and responsible consumption ticks the box for both priorities. This shift towards more considered shopping behaviour will have profound implications for brands and retailers, as consumers start to prioritise durability and quality over fashion.”