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Credit-stretched consumers curb their shopping

16 October 2006

UNITED KINGDOM — Retail research group Synovate Retail performance's Retail Traffic Index™ (RTI™) for September reports a decline in shopper numbers of 3.6% against September 2005 and month-on-month by 6.9%. Footfall for Q3 was down by 3.1% against the same quarter last year, slightly better than the year-on-year fall of 4.3% recorded for Q2. Nevertheless a new pattern is clearly emerging; that the cash-strapped, on-their-credit-limit-poor have curbed their shopping while those still feeling affluent are strongly tempted by ongoing price deflation to shop while prices remain low.

Dr. Tim Denison, Director of Knowledge Management at Synovate Retail performance comments; "The figures for September are much as we had forecast with a slight worsening of the position that stood in August 2006 versus 2005. It is never the strongest of months for footfall given the end of the summer Sales and the school holidays. Like many months this year September's retail scene was affected by the foibles of the British weather. The warm month did not play into the hands of the fashion stores merchandising their autumn / winter collections."

The RTI continues to track the BRC-KPMG Retail Sales Monitor closely but interestingly for the last 12 months has registered year-on-year deficits against the gains in sales.

Denison continues; "The fact is that significantly fewer shopping trips are being made to non-food stores. In part the decline may reflect share gains in non-food areas being made by the grocery multiples as more people are happy to shop for some of their non-food goods during their regular supermarket trips.

"In part too though, I believe we are seeing the consequences of a growing portion of society that is highly geared financially and becoming increasingly squeezed by credit constraints. Though the numbers are still relatively low, we cannot ignore the fact that individual insolvencies have risen by 66% year-on-year in Q2; to 26,000. Personal insolvencies this year alone are expected to account of over £1.5bn of bad debt in the UK.

"Nor can we dismiss the warnings from high street banks that they may be compelled to stop lending to some of their customers. Their level of bad debt stood 27% up in the first 6 months of the year, and there is belief that worse is yet to come.

"Over the last decade we have gradually migrated over to a credit-centric society, in fact Europe's most credit-leveraged ever. This has helped fund the retail boom that we have witnessed and which has sustained retailers.

"However, there is only so far that the loan envelope can be stretched. Although for most of us that point is still a way off, especially as house prices continue to inflate, for a small and growing minority that point is rapidly being reached, particularly on unsecured debt. August saw a 12 year low in credit card lending. Home repossessions are running at their highest levels since 2001. Whereas a trip to the shops might have featured prominently in their routine, it is now more a question of avoiding the temptation to spend by steering clear of the shops except for essentials such as food.

"No-one should doubt that trading conditions have toughened for retailers over the course of 2006 with both rising costs and price deflation. To date the main players are choosing to absorb extra cost and / or renegotiate with suppliers rather than increase prices, mindful of the poor state of consumer confidence. Sales are being driven by heavy discounting and multi-level promotional activity.

"The successful are being rewarded with higher conversion rates from those members of the public still shopping recreationally. The pattern of Britain's shopping habits is changing; it is no longer a matter that sales are being driven by people making more shopping trips. Those times have gone for now and the rebalancing of the economy is well underway."

Retailers or analysts wishing to find out more about Synovate Retail performance's award-winning customer services should contact Dr Denison at Synovate Retail performance on 01908 682700. Media enquiries should be directed to Theo Chalmers at Verve PR on 01908 275271.