Consumer spending to fall 2% in another tough year

RETAILERS are set for another difficult year as consumer spending is expected to plunge by more than 2% this year.

In the last quarter of 2010 consumer confidence dropped to -25, according to the UCD Michael Smurfit graduate business school and the Marketing Institute of Ireland (MII) consumer market monitor.

The budget, IMF bailout and government uncertainties all led to the decline which was at -12 in August. The Irish index dropped below Britain by 30% and EU by 24% in the same period.

This drop in consumer confidence had a knock-on effect on spending, as personal savings peaked at 12% in 2010.

Given the continuing uncertainty in the jobs market and rising interest rates, the monitor expects personal savings to stay above 10% until 2013, falling to 8% after that. Although the rate of saving is high, the monitor outlines that consumer spending has remained relatively stable with a modest decline of -1.7% overall in 2010. This is significantly better than 2009 which experienced -7.2% fall in consumer spending.

With disposable incomes falling further at the outset of 2011, as budget measures are implemented, consumer spending is forecast to fall by a further 2.2% in volume terms this year.

Professor of marketing at UCD Smurfit School Mary Lambkin said: “The monitor’s Q4 results have shown changes in the economy such as rising taxes, increases in essential consumer products and services such as electricity and fuel, are making it hard for people to justify spending on unnecessary items. This is also contributing to a high rate of disconnections such as healthcare insurance and other key services.

“These increases collectively are making a very substantial impact on people’s ability to live and it is important that decision makers and politicians keep the human costs of their business decisions in full view and keep prices down as much as possible.”

Overall, retail sales, excluding the motor trade, stabilised in 2010 as the volume of retail sales decreased by just -1.8% in 2010 compared with -7% in 2009.

Retail sectors that have experienced a growth in sales include department stores (5.3%); electrical goods (5.1%) in volume; food (1.7%) and non-specialised stores (2.2%). However sectors showing continuing decline include household goods (-1%), pharmaceuticals and cosmetics (-0.4%), fuel (-21.5%) and clothing, footwear and textiles (-0.8%).