John Lewis hit the headlines recently as it opened its online Christmas store a week early – a result of higher-than-usual festive searches among customers. The high-end department store found that searches for “Christmas” on Waitrose.com rose 193% compared to this time last year, while searches for wrapping paper (+466%) and crackers (+400%) soared too.

GlobalData’s social media analytics also show an increase in mentions of “Christmas” among retail influencers in recent weeks. Does all this bode well for the ‘Golden Quarter’ (Q4 2023) ahead?

Eye-watering levels of inflation, energy prices and the general cost-of-living crisis weighed heavily on 2022’s Golden Quarter, with sales volumes falling 5.8% in the UK compared to a year earlier. Consumers’ presence on local high streets was also lacking, with December footfall rising only 7.2% compared to 2021 despite the lifting of pandemic restrictions.

The coming festive season, however, might seem to offer more jollity. Asda’s income tracker saw annual growth of 6.8% in August – the strongest year-on-year change since September 2021. The income tracker has now recorded annual growth for four consecutive months, with the weekly discretionary income for the average UK household growing to £224 ($272).

Near-term improvements have been driven by a third consecutive month of inflation deceleration. Discretionary incomes nevertheless remain below pre-crisis levels.

The Retail Spending Index of GlobalData, the parent company of Retail Insight Network, also indicates some recovery in consumers’ willingness to spend after a record low of 72.9 in September 2022.

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By GlobalData

GlobalData, however, is less sanguine about Q4 2023’s UK retail sales than some analysts, forecasting 3.3% growth in total value of retail spend compared to 6.2% growth in Q4 2022.

“3.3% growth for the golden quarter is obviously not as impressive as last year's result but it’s a very different environment,” Patrick O’Brien, retail analyst for GlobalData, told Retail Insight Network. “Last year had higher inflation which forced up spend faster, and it was the first Christmas period without any Covid restrictions, and so there was a feeling of pent-up celebrations.”

“This year, inflation is lower, the cost-of-living crisis has taken its toll, but people will still be spending more even than last year,” he adds. “This is down to inflation, of course - people will be spending more, but actually getting less stuff for that money. Non-food spend in Q4 2023 is forecast to be just +1.2%, but the volume bought will be negative.”

What is more, budgets are still tight. Wholesale energy prices may have fallen, but the £400 energy bills support scheme is no longer in operation and other costs are soaring. Data from the Office for National Statistics shows that the UK annual private rental price growth rose to 5.5% in the 12 months to August 2023, while four in ten adults are reportedly finding it difficult to afford their rent or mortgage payments.

Vicky Pryce, a senior member of the British Chambers of Commerce (BCC)’s Economic Advisory Council, said last month that the BCC’s dreary forecast (stubborn core inflation and lower business confidence) “shows the UK economy is continuing to teeter on the edge of a recession. But the fact is, that with growth predicted to hover so close to zero for three year, it will still feel a lot like one for most people and businesses.”

Alongside John Lewis, Richard Galanti, CFO at Costco, said that the bulk-buy giant was already seeing promising sales on its Christmas goods: “I mean, we're one of the - not the only one – but one of the few that are bringing in seasonal items early, everything from decor to trees, to toys, that's starting off well so far.”

The early enthusiasm for seasonal goods, however, may be an indicator that consumers are seeking to spread costs. Indeed, some retailers have pre-empted this trend by bringing out seasonal goods early. Asda has mentioned releasing delivery slots earlier than ever and is offering a turkey pre-order service to help shoppers prepare in advance, while Waitrose launched frozen food from its new Christmas 2023 range at the end of August.

The Q4 2023 outlook for UK retail, then, looks mixed. On the one hand, income growth is strong and interest rates finally appear to be stabilising. On the other, the lingering effects of inflation and the increasing costs of rent and mortgage payments are expected to force down volume sales, dampening retailers’ Christmas cheer.

Our signals coverage is powered by GlobalData’s Thematic Engine, which tags millions of data items across six alternative datasets — patents, jobs, deals, company filings, social media mentions and news — to themes, sectors and companies. These signals enhance our predictive capabilities, helping us to identify the most disruptive threats across each of the sectors we cover and the companies best placed to succeed.