Holiday shopping season forecast is mixed

Tis the season to be frugal, according to recent retail spending figures and distressing economic forecasts for Europe, but one survey shows Czechs are willing to spend just slightly more on Christmas this year than last. It may, however, be the last hurrah for consumer spending for some time, as the ghost of Christmas future is foretelling austerity, a higher value-added tax (VAT) and slower economic growth in the new year.

Czechs intend to spend an average of 507 euros on their Christmas shopping this year, according to a survey conducted by Deloitte of more than 18,000 shoppers across Europe. For Czechs, the anticipated seasonal spending is up 2.5 percent year on year, which is surprising considering the decline in nonseasonal spending that has been seen in recent weeks.

Unadjusted retail sales fell 0.5 percent year on year in September, according to the Czech Statistical Office, with drops seen in nearly every sector with the exception of automobile and technology, which saw increases of 3.7 percent and 9 percent respectively. Sales of clothing, footwear and leather goods in specialized stores fared especially poorly for the month, with a drop of 6.5 percent. Sales of cultural and recreational goods were down 1.8 percent, and other household equipment was down 1.5 percent.

Mail-order and Internet sales of all goods stayed strong for the month, up more than 6 percent.

Though the results were mixed on the whole, analysts say the downward side of the trend is what is likely to continue given the current economic climate and plans for fiscal reforms.

"Uncertainties now prevail over fiscal consolidation measures including the rise in VAT and implications of the euro debt crisis, which may slow growth in the Czech Republic," said Patrik Rožumberský, an economist with UniCredit Bank. "There is also the fear of possible consequences regarding the labor market."

But those same uncertainties about the state of the economy going into the next year may also be a reason to spend more liberally on Christmas, according to Martin Tesař, a partner with Deloitte.

"One of the reasons may be the fact that the 2011 holiday season will be the last occasion for consumers to enjoy themselves, and rightly so, in anticipation of difficult times ahead in 2012," Tesař said.

Nearly 40 percent of respondents will spend more on Christmas in order to enjoy themselves and not think about the crisis, Tesař said. Despite the larger budget this year, 83 percent of respondents say they plan to buy fewer gifts, an indication of perceived consumer price inflation.

At the same time, the survey also showed Czechs are more likely than other Europeans to cross-check prices with other stores in order to get the best deal and are much more conservative in terms of purchasing methods, with very few planning to use credit to finance their Christmas purchases. Seventy-one percent of respondents in the Deloitte survey said they would pay cash for their gifts.

Internet shopping should be as strong again this season as it has been all year, with 86 percent of respondents saying they will make use of the Internet for their purchases, either for searching out the best deals or for buying online. This is compared with 72 percent of Europeans on average.

The Christmas sales tally will also depend largely on the extent to which retailers lure customers with special deals and holiday discounts. Analysts say it is likely we'll see more discounts this year, as retailers are already feeling their margins squeezed from slumped sales this year.

Tesař says sales and discount campaigns may be more effective this year than in seasons past because of improved communication and advertising strategies on the part of retailers.

"The stagnation of retail sales and consumer spending will likely continue also in the coming months and in December," Rožumberský said. He added the Christmas shopping results adjusted for inflation will also depend on the behavior of retailers, who could spur buying with discounts.

It seems most of retailers' hopes for this year will hinge on the Christmas shopping haul. In addition to the gloomy economic forecasts, the recent decline of the Czech crown could cause inflation and a hold on spending if it continues in the weeks to come, Rožumberský said. "The trend will be negative across the board."

Emily Thompson can be reached at
ethompson@praguepost.com