In the aftermath of the recession and years of poor economic performance, it is understandable that consumers have developed a more thoughtful approach to their buying habits, seeking out bargains and cutting spending across most categories.
However, a new report by Mintel has highlighted tentative signs that consumers are starting throw caution to the wind and make more indulgent purchases.
The research by Mintel indicates that, while households continue to shrink in size, multi-generational households were the fastest growing family type between 2010 and 2015. This is largely due to an accumulation of economic misfortunes which have put many traditional milestones out of reach of today’s young adults, including getting onto the property ladder. As a result, many young adults have been pushed back to living with their parents (if they ever left in the first place).
The ageing population has also put more pressure on public budgets, and while the economy grew by 2.2% in 2015, this growth has been driven by the services sector. Manufacturing and construction have struggled to keep up in recent years, sparking concerns about the overall balance of the UK economy.
The housing market, with 32 % of total spend, did experience a slow-down in 2015, due partly to would-be homebuyers being priced out of the market as well as the tighter lending criteria being implemented following the 2014 Mortgage Market Review. Housing-related costs are also expected to rise steadily as mounting pressure on housing stock will push up house prices and rental costs.
But despite the economic conditions, total consumer expenditure increased by 1.7% in 2015, reaching £1,126 billion. Housing, transport and in-home food are the three largest sectors, accounting for 53% of overall spend.
Consumers in 2015 continued to look for the best deals, indicating that savvy shopping habits won’t be disappearing despite more confidence in the economy. With that said, discount hunting is starting to show signs of fatigue as consumers are bombarded with price promotions daily, leading some retailers to focus on everyday low price (EDLP) strategies instead.
A rapid fall in wholesale energy prices failed to trickle down to households in 2015, as utility costs actually increased for consumers. This led to half of consumers using price comparison sites to switch to a different gas/electricity supplier, demonstrating their price-sensitivity and appetite for better deals in the industry.
When it came to splashing out on indulgent purchases, fashion items became the ultimate treat, with many consumers expecting to find a bargain before making a purchase. Consumers are also relatively positive about spending on holidays, and short city breaks in the low seasons will be a key area for growth as multiple breaks throughout the year becomes the norm, particularly for millennials.
Outlook for 2020
Total consumer expenditure is expected to rise a further 16% over the next five years, with home & garden, personal finance, clothing and housing anticipated to perform well.
The ‘feel good factor’ of rising property values is contributing to homeowners willingness to renovate and decorate, along with a rise in spending power and low inflation. As a result, the home and garden sector is expected to lead recovery in consumer expenditure, with a projected of 25% by 2020.
On-going improvement in household finances will also continue to drive demands for many financial services, including credit, insurance, investments and financial planning.
Overall it is clear that higher-income Britons are pulling away from the rest, showing more willingness to spend across more indulgent categories, such as leisure, holidays, and food. And whilst consumers expect to see reduced prices in shops, widespread promotions are damaging brands’ reputations and profits. In 2016 the focus for brands should be on customer service and quality improvements, rather than trying to undercut competitors.