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UK households face £3bn Christmas spending squeeze, says think tank

As cost of living bites shoppers likely to buy early and turn to online marketplaces in an attempt to budget

Young woman admiring window display while holiday shopping on winter evening.
With the cost of living squeeze UK households are predicted to have £3bn less to spend this Christmas, says new study by Retail Economics. (Oscar Wong via Getty Images)

UK households are expected to have £3bn ($3.64bn) less to spend this Christmas compared to the previous year, as the cost of living crisis continues to weigh heavily on consumers, according to research revealed today by ShipEngine and Retail Economics, an independent research company.

The study highlights the ongoing financial strain caused by high inflation. It predicts that shoppers will adjust their holiday spending habits; that they are intending to start Christmas shopping earlier, and they are turning to online marketplaces to stretch their budgets and reduce overall expenditure.

UK consumers are projected to spend a substantial £17.9bn on online marketplaces during Black Friday and the Christmas period, as they seek competitive prices.

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Across eight surveyed markets, including the UK, US, Germany, France, Spain, Italy, Canada, and Australia, the Peak Season Report 2023 estimates that online marketplaces will account for nearly £202bn in sales during the season.

"Cautious consumers and unpredictable economic conditions won’t dim the Christmas shopping spirit of UK shoppers, who are set to hunt for discounts, deals and value, as they try to get the most bang for their buck this year." said Tom Forbes, senior vice president of enterprise revenue at Auctane, ShipEngine’s operating brand.

UK inflation dropped to 6.7% in August, down from July’s 6.8%, despite a rise in fuel prices.

Read more: UK inflation slows unexpectedly to 6.7% ahead of interest rate decision

Early bird and online shoppers rise

Early shopping is becoming the norm, with 40% of UK consumers planning to start their Christmas shopping before October, says the study.

Retailers are also embracing this trend, with one in four intending to increase holiday promotions, and a similar proportion planning to launch promotions before October.

Online shopping is set to dominate, with 57% of consumers across the surveyed markets planning to do most, if not all, of their holiday shopping online, up from 49% last year. In the UK, 64% of consumers intend to conduct the majority of their shopping online.

Online marketplaces are the preferred channel for shoppers this peak season, with nearly 90% of consumers planning to shop on them, rising to 95% for UK consumers.

Shoppers believe that marketplaces offer better value and the ability to easily compare products and prices. Additionally, 71% of UK consumers consider online marketplaces to provide fast and reliable delivery.

Read more: Bank of England unlikely to raise interest rates further in 2023

40% of UK consumers surveyed planning to start their Christmas shopping before October according to new research by Retail Economics.  (Source: Retail Economics)
40% of UK consumers surveyed are planning to start their Christmas shopping before October according to new research by Retail Economics. (Source: Retail Economics) (Source: Retail Economics)

Richard Lim, ceo of Retail Economics, said that with the squeeze on incomes for many households, who have dwindled down their savings as the cost of living crisis drags on, "Are using all means necessary to manage their budgets by shifting more of their spending to online marketplaces to search for bargains, searching for pre-loved products and starting their festive shopping earlier to spread the cost."

Cost of living

The 2023 peak season is likely to be marked by cautious consumer spending, research findings warned.

A substantial 79% of UK consumers surveyed stated their intention to cut back on non-food spending related to Black Friday and Christmas, a 9% increase from the previous year.

34% of UK consumers cited inflation, while 22% mentioned a lack of savings as their primary concerns heading into this year's peak season.

Across the UK charities are bracing themselves for a festive season where many households will struggle to find festive cheer.

Demand for basic necessities from hundreds of families in the north-east has soared, according to an Aberdeen charity reported in News STV and an Edinburgh charity predicts soaring cost of living, continuing high inflation and mounting energy bills will culminate in a ‘Christmas crisis’.

However, retailers appear more optimistic about peak demand, with almost two-thirds of online merchants expecting sales volumes to align with last year, and 24% anticipating an increase.

Read more: Food prices to overtake energy as biggest cost of living headache in the UK

Warsaw, Poland - September 13, 2011: Photo of computer monitor with four browsers open. Ubid, eBid, Ebay and Online Auctions. The online auction business model is one in which participants bid for products and services over the Internet. The functionality of buying and selling in an auction format is made possible through auction software which regulates the various processes involved.
Online retailers are optimistic with most expecting the volume of sales to match last year's, while 24% are predicting higher sales. Photo: Getty (labsas via Getty Images)

Retail optimism delivered on time

Nearly two-thirds of online merchants surveyed believe sales volumes will align with last year, with 24% anticipating an increase in volumes compared to the previous year.

Read more: UK households to be £2,300 poorer as interest rate rises extend cost of living crisis

There optimism appears to be born out by the data: across the eight surveyed markets, 57% of consumers plan to do most, if not all, of their holiday shopping online, up from 49% the previous year.

In the UK market, 64% of consumers intend to conduct the majority of their shopping online, leading the trend in early Christmas shopping, with 40% planning to begin before October and 15% of those intending to shop early stated they already began shopping in August.

Retailers are looking to capitalise on this trend, with one in four merchants planning to increase their holiday promotions this year and an equal proportion intending to launch promotions before October.

The research also found that consumer delivery preferences shift during the peak season,

While the cost of delivery remains significant, speed becomes equally crucial, with almost 70% of UK consumers emphasising the importance of swift delivery, alongside cost.

Fewer than one-third of surveyed merchants plan to offer standard delivery in two days or less.

Lim cautions that,“Retailers will have to work harder than ever this year to keep prices competitive while catering for more demanding customers who want to shop on and off-line in a manner that suits their needs.”

Watch: Disabled gran forced out of flat by fire fears another Christmas in a Travelodge

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