European Consumer pessimism finally reaches our shores….
This year’s unfavourable environment does not bode well for European and South African retailers hoping for an economic upturn in spend over the holiday season. It is clear that strong consumer pessimism still exists within most countries in Europe. South African consumers who are traditionally more optimistic than European consumers, have shown a marked downward shift this year and have joined the conservative sentiments displayed by European shoppers, indicating that the recessionary consumer mindset has finally reached our shores. It also seems that the buying behaviours of consumers are unlikely to change for some time to come, despite signs that there is some economic recovery on the horizon.
The thirteenth Deloitte Year-end Holiday Survey which was conducted in over 19 countries, has shown that pessimism among South African consumers has increased, closing the gap between themselves and their traditionally more conservative counterparts in Europe. Nearly two-thirds (62%) of South African shoppers have indicated that they will spend the same or less than they did last year over the coming holiday season. During the last two weeks of September, we questioned a broad representative sample of consumers across all 19 countries in order to assess their frame of mind and intentions toward their planned spending on gifts, food out-of-home entertainment and leisure over the coming holiday season and some of the highlights are presented below.
“This year is going to be tight for retailers who will have to be innovative about attracting the hard earned Rands of consumers. Items with high utility value will emerge as a strong priority for consumers looking to justify spend in these uncertain times. Seeking out the best price facilitated by the internet will be a common theme emerging among more sophisticated shoppers, and retailers now need to incorporate new media into their armoury of tools, since these media are, among other things, taking over the role of traditional advertising in guiding consumer choices”, explained Rodger George, Head of Consumer Business for Deloitte in South Africa.
Prevailing pessimism is affecting Holiday spending plans
While it is clear that prospects for the consumer improved in 2010, concern about the fragile state of the recovery and ongoing uncertainty around employment prospects were evident from consumers’ responses. When asked about the current state of the economy, 41% of the SA consumers surveyed said that they believed the economy was still in recession. In addition, 45% of the South Africans surveyed believe that the economy will improve in 2011 (compared with 65% who believed the same last year). Only 26% believe that the economy will stay the same. Greek, Irish and Portuguese consumers are the most pessimistic of all the countries surveyed. There has also been a downward trend in job security with only 1 in 2 South Africans surveyed in 2010 indicating that they consider their jobs to be secure as compared to 58% in 2009 and 81% in 2008. “The rise in job insecurity however is not surprising given that job losses have continued to mount through the third quarter of 2010 and considering that a rise in unemployment typically lags a deterioration in economic activity,” Kay Walsh, Senior Economist at Deloitte.
Budgeted expenditure for the year end season is expected to be down 2.5% on average across all the countries surveyed. In South Africa, the outlook for holiday spending is also quite bleak, albeit slightly better than in Europe with consumers indicating that they aim to spend 0.6% less than in the prior year.
Bargain hunting South Africans will be clearly influenced by the pricing strategies of retailers this season. 79% of South African consumers indicated that they would buy products and gifts that are on sale, compared to 69% of Europeans who would do the same. Furthermore, 70% of South Africans indicated that they would definitely be considering price when making purchase decisions this holiday season. A whopping 87% of consumers also indicated that they will be focusing on purchasing useful gifts this season.
In-house retailer brands and focussed shopping habits are prevalent among certain sectors of shoppers
Major brands are losing the position and status they had before the crisis and a new equilibrium is being established between major brands and retailers’ own brands which could last for some time. The magical pulling power and functional advantages offered by national brands during the holiday season do not appear sufficient to stave off consumers need to spend less. A massive 70% of consumers surveyed indicated that they would buy the same or more of discount or no-name brand products, outstripping 64% of European consumers who indicated an appetite for discount or no-name brand products.
There will be better planning around shopping activities with 78% of South African shoppers stating that they would prefer not to buy on impulse this season. Food and drink will top the list once again this year with 71% of shoppers indicating that they will spend the same or more on food this year. Cash, clothes/shoes and gift vouchers are on the top three wish lists of gift recipients this year. However friends and family in South Africa can expect cosmetics/perfume, gift vouchers and books as the top three gifts offered to them this year.
Anti recessionary gifts are top of parents minds
“It appears that current tough economic conditions have also influenced the choice of gifts for children. Parents putting a huge emphasis on educational games this year and this is possibly because in tougher times they are more mindful of the need to equip their children well for the future,” says Walsh. Remarkably, in 17 out of the 19 countries surveyed, educational games will be the top gift purchased for children under the age of 12. This includes South Africa where shoppers indicated a clear preference for educational games, followed by clothes/shoes and creative constructions (Lego, mega blocks, painting and drawings) to complete the top 3 gift list. Interestingly, video games occupy 7th spot on this top 10 list. Teenagers on the other hand can expect music, clothes and shoes and gift vouchers as the top 3 gifts waiting for them under the tree. “This year’s innovations such as touch screen tablets, IPads and 3D televisions have not yet found their way onto the list yet, although burgeoning global demand among younger populations will need to be closely monitored by retailers in the near future” comments George.
South Africans have indicated a growing trend to spend less this year on out of home leisure and entertainment, occupying 3rd place behind Greece and Ireland in the 19 countries surveyed. Shoppers once again have indicated an overwhelming preference for purchasing gifts in Hypermarkets and speciality chains.
Traditional distribution channels are being impacted by rapidly-changing buying behaviours and the importance of the internet as a tool for comparison is increasing, although the appetite for purchasing gifts through the internet in South Africa remains low.
51% of shoppers surveyed will use the Internet to search for gifts and compare prices for the year-end holiday season. However purchases via the internet in South Africa still remains low and is not predicted to change significantly in the short term. For the small amount of shoppers who indicated that they would consider buying gifts via the internet, convenience and low prices are the main driving factors driving shoppers to do so.
