UK shoppers in frugal mood

22 June 2009

LONDON: The average household in the UK now has 25% more money to spend on discretionary purchases each month than a year ago, but this has not yet translated into improved sales figures for retailers in the country, Ernst & Young has found.

According to the company's Annual Discretionary Income Study, the typical British household has an additional £200 ($329; €236) to spend on a monthly basis compared with the same period in 2008. (This figure does not apply to households where there has been a change in employment status.)

Contributors to this trend include an 8% decline in consumer costs over the last year, with the average mortgage repayment decreasing by 20% over this period, while petrol and energy prices have also fallen.

Jason Gordon, retail director at the company, argued many households have "experienced a dramatic upturn in their monthly budgets over the last year."

Most consumers, however, have used this "spending power to repair savings balances and pay off credit cards and other debts. These gains are certainly not being spent freely on the high street."

This seems to be evidenced by figures from KPMG and the British Retail Consortium showing that UK high street sales fell by 0.8% on a like-for-like basis in May, and rose by just 0.8% overall.

By contrast, IMRG Capgemini's latest eRetail Sales Index reports that online sales rose by 8.2% in May on an annual basis, to £3.7bn overall.

However, it noted that the pace of expansion had fallen by 3.5% compared with April 2009, and from 30.9% in May 2008, marking the lowest annual improvement rate in the survey's history.

Recent statistics from Nielsen also show grocery sales in the country rose 5.1% in the 12 weeks to May 16th, but the research firm said this was "largely due to the record number of products on promotion."

Mike Watkins, senior manager, retailer services at Nielsen, said that "a record of 32% of all sales"  during this period were "goods on offer".

He added that this demonstrated that retailers recognise "they need to show good value for money as a fundamental shift in consumer behavior has taken place over the past few months."

Data sourced from Citywire/Nielsen; additional content by WARC staff