Merry Christmas? 2013 Festive spending in major markets
31 December 2013
Retail sales performance during the Christmas season is a sound indicator of consumer sentiment as well as of consumer buying strength and preferences. It also provides a valuable pointer to the likely state of the retail business in the year ahead. In terms of Hong Kong’s most significant markets, the 2013 year-end retail landscape and the holiday spending provide an invaluable means of determining the extent to which the incipient global economic recovery will support consumer confidence and consumption. To this end, HKTDC’s global network of offices has provided first-hand information regarding their own territories in order to help assess the year-end sales situation across Hong Kong’s major markets.
US – satisfactory growth amid extensive promotions
Although sales results for the whole festive season will not be available until retailers formally announce their December business turnover in January 2014, the early indications suggest that holiday sales in the US were at least satisfactory. With just 26 days between Thanksgiving and Christmas (six days less than last year and the shortest since 2002), retailers offered ever-deeper discounts and further extended their business hours in a bid to boost sales. Indeed, for the first time, many of them opened on Thanksgiving. The cold weather, for lack of serious snowstorms across much of the US, was another contributing factor. While estimates vary, a 3% - 4% increase over the previous season is widely believed to be the overall Christmas 2013 sales result.
More critically on the economic front, the continued rebound in the housing and job market, plus rallying stock prices and cheaper gasoline bills, resulted in a positive festive atmosphere. Christmas shoppers, however, were still not buoyed enough to make lavish purchases, with fiscal concerns lingering in spite of the recent conclusion of a state budget deal for the next two years. Most shoppers, although tired of penny-pinching, stuck to well-priced and practical gifts, taking time to plan and organise their purchases. Even more wealthy shoppers, who fared quite well this season, proved focused and tactical, favouring less pricey articles rather than more ostentatious purchases. In most cases, holiday shoppers still opted for cash or debit cards to ensure their spending remained within budget, along with a penchant for buying gift cards in view of their practicality. The use of mobile devices and social networks to search for gift ideas and make online price comparisons also proved to be the norm.
In response to unabated consumer cautiousness, US retailers, despite the damage to their bottom lines, offered a range of unprecedented discounts and door-buster specials in order to attract price-driven shoppers. Taking advantage of the popularity of online purchases - notably mobile shopping - e-tailers (including most brick-and-mortar retailers with websites and mobile apps), performed particularly well during the festive season. Nevertheless, as prudence has remained the watchword for many holiday shoppers, mass merchandisers and discounters again captured a large chunk of the year-end business. Despite this, department stores and high-end stores also demonstrated a number of gains, particularly with regard to stronger sales of discretionary items.
Consumer electronic items were among the biggest draws this year, with smartphones, tablets, TVs and cameras topping the list of gift purchases. Electronic entertainment equipment, boosted by the recent release of several new game consoles, also proved popular. Other than game consoles and their related software, classic toys, such as Barbie and Lego, also proved highly sellable.
In the clothing sector, consumers focussed on practicality, opting for basic items that offered comfort and function, as evidenced by a good showing for winter clothes and footwear in line with the cold weather. Sales of high-end fashion also proved better than had been expected. Likewise, for jewellery and upscale timepieces, sales were at least satisfactory this season. There was an upturn, too, in terms of home-related merchandise, with demand being driven by improvements in the housing market.
EU – Christmas cheer spurred by improving sentiment
Bucking the declining trend of the past five years, festive spending in Europe was generally up in 2013, although Christmas sales results have varied from country to country, with Germany and the UK being the brightest spots. Believing the EU economy is now on course for a gradual recovery, consumers proved more willing to spend. While consumer confidence has strengthened somewhat, holiday shoppers, in the face of high joblessness in many member states and EU debt-busting austerity measures still being in place, were still conservative, sticking to strict budgets and hunting for basic and practical products.
Ever more frequently, the practice was to use mobile devices and social networks in order to find the best prices and to gather sales information. European shoppers, shying away from credit cards, favoured cash and debit card payments for their purchases, while gift vouchers were also popular.
In response to continuing consumer conservatism, most retailers continued to rely on discounts and promotions to drive sales, with the dependence on these tactics diverging across the different markets. In Germany, for instance, where consumer sentiment was more upbeat, price cuts and promotional activities seemed less intense. In terms of retailers, with consumers still concerned about prices, value retailers tended to outperform department stores and upscale stores, where sales were, in part, propped up by EU consumers’ increased willingness to spend and, more importantly, by an inflow of overseas buyers, notably from China. Cashing in on the prevalence of online commerce, e-tailers were another winner this festive season. Given the high volume of online sales, an increasing number of brick-and-mortar retailers also engaged in e-tailing in a bid to boost their year-end sales.
In Germany, the retail climate was particularly favourable. Thanks largely to its healthy labour market and to rising wages, German consumers - traditionally, Europe’s big savers - have a higher propensity to spend during the holiday season, with overall sales growth estimated to have risen by more than 1%. In terms of products, consumer electronics, notably smartphones, were the favoured gifts. For toys, while traditional items, such as dolls, wooden toys, construction sets and board games, continued to fare well, selected non-traditional recreational items, notably electronic game consoles, smart toys and educational toys, were also widely sought after. In terms of garments and footwear, sales suffered as a result of the gentle weather conditions that dampened demand for winter clothes and shoes. In the jewellery and timepieces sector, higher-end items fared better than last season. Household appliances also proved to be in demand this year.
France and Italy
Compared to Germany, economic conditions in France and Italy have remained less favourable. With signs of a tentative recovery, however, the year-end atmosphere showed some signs of improvement, although shoppers remained concerned about their purchasing power, with extensive discounts and promotions required to stimulate sales. As such, holiday sales in both countries, though not yet showing visible growth this season, managed to post a better performance than over the past few years. This was especially true in debt-ridden Italy, where a significant decline in sales has been the norm since the 2008 global financial crisis. In the main, shoppers in both markets opted for consumer electronics, notably smartphones and tablets, plus recreational items, such as basic and educational toys, as presents. Meanwhile, garments, jewellery, timepieces and household appliances tended to occupy a lower position on the shopping preferences list.
Christmas sales in the UK are expected to have increased by 2% - 3%, against a backdrop of extensive discounts and promotions. Without a doubt, though, the year-end shopping spirit was lifted by a rebounding economy, particularly in terms of higher levels of employment and rising property prices. Overall, the brief period of stormy weather in the run-up to Christmas seemed to have little impact. As was common elsewhere, consumer electronics were the standout items, especially in terms of the most stylish and desirable products, such as smartphones and tablets. The sturdy housing market also bolstered the demand for TVs, as well as home appliances, including washing machines and fridges. Toys, particularly electronic game consoles, were another popular choice. For their part, sales of clothing and footwear proved subdued, due largely to the unusually mild weather. By comparison, sales of watches and jewellery were less substantial, although growth was still recorded in line with the reviving interest in big-ticket items.
Japan – better year-end sales
In Japan, the positive impact of Abenomics has facilitated year-end sales, which are expected to have shown growth of around 2%. Given their rise in winter bonuses, consumers were more willing to spend at Christmas, a major year-end occasion for gift exchange in the country. While higher-income customers, notably those enjoying a windfall from the surging stock market, showed a growing penchant for luxury items, most shoppers remained conservative, with discount stores and e-tailers again finding favour. Yet, overall, price cuts were not as deep as last year and department stores also tended to fare better. As with the US and the EU, consumer electronics - spearheaded by smartphones and tablets - approved a popular buy. In line with the growing demand for luxury products, sales of watches and jewellery were up. The seasonable weather also boosted the demand for clothing and footwear. Sales of toys were affected by a lack of ‘must-have’ items, however.
China – largely solid retail performance
With its stable economy, the consumption sentiment in China has remained positive. Amid steady wage increases, retail sales in the first 11 months of 2013 were 13% higher than a year ago. In November alone, retail sales grew by 13.7%. This brisk performance reflected not only a robust spending trend, but also a wider adoption of the Yuletide spirit across the country. While Christmas is not traditionally celebrated on the mainland, it has caught on in many urban areas and, increasingly, in rural areas. Spending on more traditional Chinese festivals, such as Singles’ Day, deprived Christmas of some sales, while the proximity of the Lunar New Year celebrations has also had an adverse impact on Xmas spending. Despite the dampening effects of the government frugality campaign on luxury items, feedback from HKTDC’s mainland offices generally suggests hearty retail and online sales for most consumer goods. As well as buying in their home markets, many consumers still visited Hong Kong or went overseas for their year-end shopping.
Other emerging markets – generally good showings in Latin America and Central and Eastern Europe
For Latin America, steady economic resurgence in the region, despite worries of tapering US monetary stimulus, provided a lift to consumer sentiment and to festive spending. In Brazil, Christmas sales, in the run-up to the 2014 World Cup, showed a decent increase. In Chile, it was not only local shoppers who proved willing to spend, but also an influx of Argentine buyers, many of whom have suffered from stringent foreign exchange controls in their home country. Their arrival helped spur the country’s commendable sales performance during the festive season. In Mexico too, where the economy has recovered in tandem with the US, year-end sales were resilient, evidenced by the good scores achieved during the ‘Good Weekend’, the Mexican equivalent of the US Black Friday. In terms of products, consumer electronics and toys were the bestsellers. Garments, footwear, watches and jewellery were also among other gifts targetted by Christmas shoppers.
As for Central and Eastern Europe, the reviving EU economy seemed to prove a boon to festive spending, as a growth in Christmas sales was generally recorded across the region. As with their counterparts in Western Europe, however, shoppers remained concerned about their purchasing power, and good deals were required to lure purchasers. Market-wise, Hungary, given its improving financial conditions, exhibited moderate growth in terms of its year-end sales. In the Czech Republic, the modest rise in Christmas sales was facilitated by stronger exports to the EU. In Poland, where the economy had not been seriously affected by the EU downturn over the past few years, its year-end sales were in a still better form. Outside the EU, Russia, with its consumers steadily following the buying patterns prevailing across the EU, enjoyed ever more solid sales results. On the whole, shoppers were mostly keen on consumer electronics, household items and toys.
Implications of Xmas sales results – a more favourable outlook for 2014
Increasingly, the year-end sales performance has become a bellwether for the retail business over the forthcoming year. This is true not only in those countries that celebrate Christmas, but also in a number of markets where Christmas is not traditionally a festive season, most notably the Chinese mainland. To no one’s surprise, the 2013 Christmas sales results, buoyed by the recovering global economic environment, were more impressive than last year. There were inspiring performances in both the emerging markets and, more encouragingly, in the traditional markets, including even Italy and Japan, where sales have been mediocre, at best, over the previous few seasons.
This turnaround in the traditional markets is certainly good news for Hong Kong exporters. They should now look to intensify their sales efforts in order to take full advantage of these renewed business opportunities. They should also be aware, however, that although consumers are gradually loosening their purse strings, a cautious mood will continue to prevail for the foreseeable future. Value-for-money will continue to be the most important factor for most shoppers, with a fast expanding proportion of them using the Internet to source product information and compare prices. As a corollary, importers and retailers will remain relatively conservative, with many still expected to play safe in terms of order size, lead time and pricing. Many of them are also expected to expand their e-tailing activities in order to shore up their sales, while also diversifying their sourcing and manufacturing away from the mainland to other lower cost production bases throughout the Asian region.
While sales to the traditional markets will be ever more important in light of their incipient recovery, Hong Kong exporters should also continue to make inroads into the emerging markets in terms of business expansion. As clearly shown by the holiday sales results, there are a number of promising territories in this still-developing sector. In addition to Latin America, Central and Eastern Europe, a region starting to capitalise on the nascent EU recovery, will emerge as another promising market. Of greater importance, of course, is the Chinese mainland, where the government is endeavouring to promote consumption so as to achieve a more balanced growth between domestic and external demand, as well as between overall consumption and investment-led growth. This will, inevitably, open up new opportunities for those Hong Kong companies traditionally more accustomed to exporting to overseas markets.