Retail therapy addiction will hold up in 2011

BRITISH consumers are to continue spending unfazed in 2011, despite government cutbacks and higher taxes, according to research by auditing firm BDO.

The firm’s Retail Forecasts 2011 report calls the UK consumer a “curious beast” unable to kick an “addiction to shopping” despite speculation about a double dip recession.

The report uses a monthly high street sales tracker that has recorded a steady rise in consumer spending this year, leading BDO to project overall sales growth of three per cent over the Christmas period. Consumer spending accounts for 65 per cent of the UK economy.

BDO’s tracker, which collects data from 70 retailers with 10,000 stores, showed a 4.1 per cent rise in sales during October. This could suggest a bounceback in consumer demand after government statistics showed a 0.2 per cent drop in retail sales during the third quarter of this year.

But it is not clear whether the rally in demand will last. Many analysts had predicted a rise due to consumers stocking up before Vat rises to 20 per cent in January next year and then a sharp fall as they reign back in 2011.

BDO’s report, however, says that there will be a “slowdown but no meltdown”, citing the likelihood of low interest rates late into next year and lower-than-expected unemployment figures as supportive of household spending.

In addition, it says: “Retailers have had plenty of time to manage their product mix and price architecture to offset the impeding VAT increase.”

The report is also optimistic about the UK retail industry as a whole, predicting growth in exports.
BDO head of retail Don Williams says: “UK retailers are very good at what they do. We are a nation of shopkeepers catering for a generation of shoppers. As brands get more global, UK retailers are ideally placed to start exporting their skills.”

Moreover, with firms sitting on improved balance sheets and unspent capital from spending cutbacks during the recession, BDO says to expect possible consolidation as larger firms snap up a “megadeal” by buying rivals.