Crunch time makes it "survival of the fittest"

CONSUMERS are feeling increasingly worse off month-by-month as their disposable income dwindles, according to new research examining the effects of the credit crunch.

And consumer spending is predicted to slow to to just 0.5% next year, accountancy firm PricewaterhouseCoopers has warned.

Almost 60% of consumers surveyed by PwC said they were concerned that their household will be worse off in the next 12 months – up from 37% questioned in April.

PwC said although many observers and commentators were comparing today’s economic climate to that of the early 1990s, when the last recession took place, it may be an unfair benchmark.

Randal Casson, retail partner at PricewaterhouseCoopers in Yorkshire, said certain categories of consumer spending had shifted from being “discretionary” to “essential”, such as eating out, holidays and mobile phones.

It is also believed that some forms of consumer spend may have become more discretionary in nature, such as clothes and grocery shopping.

Mr Casson said: “The performance of certain retailers and categories during the 1990s recession gives an indication of the winners and losers of the current downturn.

“However a lot has changed over the last 15 years. New ‘value’ players have emerged, additional space has been added, and consumers have been spending more on discretionary items – treating themselves to luxury ready meals, or snapping up a cheap catwalk copy top only to throw it away after a couple of uses. As a result, some sectors will be hit differently this time around.”

He said that consumer sentiment was worsening, with the downturn hitting those who are less well-off harder. However, the most pessimistic groups in the survey were lower income groups and older consumers.

Nearly seven in 10 respondents think their household will be worse off – of which three in 10 think they will be much worse off and seven in 10 consumers over 65 think they will be worse off in the next 12 months.

The survey found that younger age groups think their household income is more resilient, with 26% of 18 to 24 year olds thinking that they will be better off.

As consumer spending tightens, PwC said the proportion spent on discretionary categories within the leisure and retail sectors was likely to decline, and that this was already apparent evidenced by the recent flurry of profit warnings, worse than expected trading statements and a 28% rise in retail administrations.

Mr Casson added: “Many retailers and leisure operators succeeded in growing through the early 1990s. Then, as now, key to success is a differentiated proposition, a focus on offering consumers value for money, and continued management focus.

The downturn should not be an excuse for retailers to stop investing for the future; it can be an opportunity to restructure or pause for breath. It’s about the survival of the fittest.”