The Deloitte Consumer Tracker Consumer confidence rises, underlying caution remains Q1 2018
Contents Q1 2018 at a glance Overall consumer confidence (q/q)* Previous Latest -7% -6% Consumer confidence Deloitte consumer confidence index 04 Individual measures of consumer confidence: 05 Job security 06 Level of debt 07 General health and wellbeing 08 Children s education 09 Household disposable income 10 Job opportunities 11 Consumer spending Essentials vs discretionary spending 15 Consumer spending in the last three months 16 The Beast from the East takes its toll 17 Retail sales (excl. Fuel) 18 Outlook for consumer spending 19 Business optimism 20 The last word 21 The last, last word 22 Confidence in level of disposable income (q/q)* Confidence in levels of debt (q/q)* Previous Latest Previous Latest -17% -15% -3% -1% Wage growth vs inflation 12 The view from the high street 13 Authors 23 Confidence in job security (q/q)* Previous Latest -3% -5% * Net balances
Consumer confidence 03
Deloitte consumer confidence index Net % of consumers who said their level of confidence has improved in the past three months 0-2 -4-6 -8 Consumer confidence returns to an upward trajectory Consumer confidence moved to -6% in Q1 2018, up by one percentage point quarter-on-quarter and year-on-year. -10-12 -14-16 -18 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Source: Deloitte Consumer Tracker 04
Individual measures of consumer confidence Our overall confidence index is based on six individual measures of confidence Current Q1 2018 Quarter on Quarter Q4 2017 Year on Year Q1 2017 Your job security -5% -3% -5% Your level of debt -1% -3% -2% Your general health and wellbeing -14% -15% -13% Your children s education and welfare 2% 1% -2% Your household disposable income -15% -17% -17% Your job opportunities/career progression -2% -3% -4% Source: Deloitte Consumer Tracker 05
Consumer confidence about job security Net % of consumers who said their level of confidence in job security has improved in the past three months 0-2 -4-6 -8-10 Consumers express concern about their job security Confidence in job security fell to -5% in Q1 2018 from -3% in Q4 2018. Job security is the only individual driver of confidence that has seen a decline this quarter as high profile administrations hit the news. -12-14 -16 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Source: Deloitte Consumer Tracker 06
Consumer confidence about level of debt Net % of consumers who said their confidence in their level of debt has improved in the past three months 0-2 -4-6 -8 Consumers take control of their debt worries Worries over levels of debt were eased as consumer confidence grew to -1% from -3% in Q4 2017. The hope is that consumers are taking ownership of their debt and not just becoming resigned to it. -10-12 -14-16 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Source: Deloitte Consumer Tracker 07
Consumer confidence about their general health and wellbeing Net % of consumers whose confidence in their level of general health and wellbeing has improved in the past three months 0-2 -4-6 -8-10 -12-14 -16-18 -20 Consumers still concerned about their health and wellbeing Consumer confidence in their general health and wellbeing is -14%, a slight improvement on last quarter, but down compared to last year. Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Source: Deloitte Consumer Tracker 08
Consumer confidence about their children s education Net % of consumers whose level of confidence in their children s education has improved in the past three months 4 3 2 1 0-1 Consumers positive about their children s education Consumer confidence in their children s education has grown consistently over the last year and is now in positive territory. -2-3 -4-5 -6-7 -8 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Source: Deloitte Consumer Tracker 09
Consumer confidence about household disposable income Net % of consumers whose confidence in their level of household disposable income has improved in the past three months 0-4 -8-12 -16-20 -24-28 -32-36 -40-44 Consumers seeing improvements in their disposable income More favourable economic conditions have seen consumer confidence in disposable income grow over the last year. But while things might be improving, it is still tough for consumers. Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Source: Deloitte Consumer Tracker 10
Consumer confidence about job opportunities Net % of consumers who said their level of confidence in job opportunities has improved in the past three months 0-2 -4-6 -8 Consumers are more confident about job opportunities Historically low levels of unemployment has seen confidence in job opportunities grow to -2% compared to -3% last quarter and -4% a year ago. -10-12 -14-16 -18 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Source: Deloitte Consumer Tracker 11
Wage growth vs inflation % Growth in average wages vs. CPI inflation % change year-on-year 5 4 3 2 1 0-1 -2 Consumers experience real wage growth After a period of rising prices and low wage growth, economic conditions have begun to turn in favour the consumer. The rate of inflation has fallen to 2.5% in March, increased demand for labour is starting to push wages up, unemployment remains low and borrowing costs remain at historically low levels. -3 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Average earnings including bonuses CPI inflation Source: Thomson Reuters 12
The view from the high street Net store openings/closures 2012-2017 and projected trend to 2020 2000 1000 0-1000 -2000-3000 -4000-5000 Projected trend The high street faces unprecedented challenges 2017 saw a squeeze on consumer spending, increases in business rates, commodity prices, wages and pension costs and a fall in the value of the pound, meaning that many retailers saw their already slim margins reduced, or in some cases, eliminated. As a result, we are seeing store closures signifcantly outstripping store openings. 2012 2013 2014 2015 2016 2017 2018 2019 2020 Non-food retail Food & convenience Leisure Service Source: Deloitte Analysis 13
Consumer spending 14
Essentials vs discretionary spending Net % UK consumers spending more by category in the last three months 20 16 12 8 4 0-4 -8-12 -16 Consumers prioritise spending on essentials Despite improving economic conditions, consumers continued to exercise caution when it comes to spending. Compared to Q1 2017, consumer spending on essentials grew by one percentage point to +13% and spending in discretionary categories remained flat at -6%. -20 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Discretionary Source: Deloitte Consumer Tracker Essential 15
Consumer spending in the last three months Net % UK consumers spending more by category Housing (e.g. rent, mortgage, maintenance) Utility bills (e.g. water, electricity, gas and other fuels) Furniture and homeware Major household appliances (e.g. washing machine, fridge, cooker, vacuum cleaner, etc.) Health Transport Landline/mobile phone, Internet and cable/tv subscriptions Electrical equipment (e.g. PCs/laptop, television, mobile phone device, etc.) Going out (e.g. cinema, theatre, concerts, etc.) Restaurants and hotels (eating out and short break) Q1 2017 Q1 2018 Grocery shopping for food and non-alcoholic beverages Alcoholic beverages and tobacco Clothing and footwear Education Pensions and insurance Holidays (long break) -20-10 0 10 20 30 40 Consumers spending more on essentials than they did last year Consumers continue to prioritise their spending in essential categories such as utility bills and food and drink. Despite improving economic conditions, consumers remain cautious the consumers who spent less on going out in Q1 2018 stated that they did so because they could not afford it. This has compounded the difficulties felt by casual dining operators over the last year. Source: Deloitte Consumer Tracker 16
The Beast from the East takes its toll Extreme weather wreaks havoc The Beast from the East and Storm Emma combined to produce some of the most difficult weather conditions the UK has experienced for many years. The amount of snow significantly affected supply chains, deliveries and high street footfall over a prolonged period. 17
Retail sales (excl. Fuel) % change in volume and value year-on year 8 7 6 5 4 3 2 1 0-1 -2-3 -4-5 -6 Sales growth slows down It has been mixed news for retailers over the last year. After a challenging 2017 for the grocers, food sales have fared well at the beginning of 2018 as a result of a general shift in spending towards essential categories, but the market is still proving to be unsympathetic to the non-food segment of the market, especially clothing and footwear. 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Volume Value Source: Thomson Reuters 18
Outlook for consumer spending Net % of UK consumers spending more by category over the next three months 10 5 0-5 -10 Consumers plan to spend more next quarter Despite expecting to spend more on essentials next quarter, consumers could continue to exercise caution in 2018. Memories of tougher times could yet outweigh improving economic conditions and consumers willingness to spend. -15-20 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Essential Source: Deloitte Consumer Tracker Discretionary 19
Business optimism Net % of CFOs who are more optimistic about the financial prospects of their company than three months ago 70 50 30 10-10 -30-50 -70 Brexit transition deal boosts business confidence The Brexit transition deal has removed some uncertainty about the year ahead and had a positive effect on the corporate mood. Deloitte s latest CFO survey reports that business confidence has grown by nine percentage points this quarter and is now running not far off its long-term average. -90 Q3 2007 Q2 2008 Q1 2009 Q4 2009 Q3 2010 Q2 2011 Q1 2012 Q4 2012 Q3 2013 Q2 2014 Q1 2015 Q4 2015 Q3 2016 Q2 2017 Q1 2018 Source: Deloitte CFO Survey 20
The last word Consumer confidence grew by one percentage point to -6% as the economic pressures felt by consumers over the last year began to ease. Consumer confidence is now at its second highest level in the history of the Deloitte Consumer Tracker and despite confidence still remaining in negative territory, the Q1 2018 results are another encouraging step forward from a low point of -10% in Q2 2017. Takeaway 1 Takeaway 2 Takeaway 3 Takeaway 4 Economic conditions are starting to favour the consumer and as a result, consumers continue to feel more upbeat about their personal finances, reporting increased levels of confidence in their disposable income and the ability to manage their levels of debt. Despite the positive economic outlook and growing consumer confidence, we are yet to see an increase in spending. Consumers continue to prioritise essential categories while spending less on discretionary areas. Cautious spending combined with increased competition and rising costs have created unprecedented challenges for businesses over the last year. We have seen increases in business rates, commodity prices, wages and pension costs alongside a fall in the value of the pound, meaning that many retailers and restaurants have seen their already slim margins reduced. Looking ahead, we may not see consumer spending pick up for some time yet. Although optimism is growing, memories of tougher times continue to outweigh improving economic conditions and consumers willingness to spend. 21
The last, last word Ian Stewart Chief Economist, Deloitte Ian Geddes Lead partner for retail, Deloitte Ben Perkins Head of Consumer Business Research, Deloitte Sarah Humphreys Lead partner for casual dining, Deloitte The consumer picture mirrors that of the business landscape, with Chief Financial Officers also reporting an uptick in confidence following the announcement of the Brexit transition deal. It remains to be seen to what extent consumers will continue to exercise caution in 2018, and recent memories of tougher times could yet outweigh consumers willingness to spend. The retail sector is facing unprecedented challenges, and the considerable media coverage around some wellknown high street names is an indication that there is little room for error. That said, retailers should find some encouragement in the fact that the squeeze on consumer spending power appears to be easing. Despite the positive economic outlook and growing consumer confidence, this quarter s Tracker suggests that these are yet to translate into an overall increase in spending. Looking ahead, Q2 confidence may improve further with the belated arrival of warmer weather and optimism ahead of the World Cup which has historically provided a boost to consumer spending across a range of categories. Casual dining operators have been hit by several pressures all at the same time. These would have been difficult to plan in any environment, but these pressures have all had a relatively short lead time, especially when you consider that a restaurant is locked into a lease that could last up to twenty years. 22
Authors Dr Bryn Walton Research Manager, Consumer & Industrial products (Author) bcwalton@deloitte.co.uk +44 20 7007 2352 Ben Perkins Head of Consumer Business Research beperkins@deloitte.co.uk +44 20 7007 2207 23
The Deloitte Consumer Tracker is based on a consumer survey carried out by independent market research agency, YouGov, on Deloitte s behalf. This survey was conducted online with a nationally representative sample of more than 3,000 UK adults aged 18+ between 23 and 26 March 2018. This document is confidential and it is not to be copied or made available to any other party. Deloitte LLP does not accept any liability for use of or reliance on the contents of this document by any person save by the intended recipient(s) to the extent agreed in a Deloitte LLP engagement contract. If this document contains details of an arrangement that could result in a tax or National Insurance saving, no such conditions of confidentiality apply to the details of that arrangement (for example, for the purpose of discussion with tax authorities). Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London EC4A 3BZ, United Kingdom. Deloitte LLP is the United Kingdom affiliate of Deloitte NWE LLP, a member firm of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ). DTTL and each of its member firms are legally separate and independent entities. DTTL and Deloitte NWE LLP do not provide services to clients. Please see www.deloitte.com/about to learn more about our global network of member firms. 2018 Deloitte LLP. All rights reserved. Designed and produced by The Creative Studio at Deloitte, London. J15363