Is the Base Rate Drop enough to save Christmas Sales

Today the British Retail Consortium (BRC) announced that retail sales were down on 1 year ago – albeit only 0.1% (2.2% on a like for like basis) although this number is much worse if you take inflation into account. Last week The Bank of England caught everyone by surprise with a 1.5% drop in Base Rates. Was this a good thing? Is the economy in a much more serious state than we imagined? Yesterday, the 2 main opposite parties were advocating tax cuts and Gordon Brown strongly hinted at the possibility. So how is all this going to affect sales? 

For the sake of argument let’s simplify our consumer groups into the Younger Generation (YG), Middle Generation (MG) and the Older Generation (OG). How are these groups affected? To generalise, YG tend to live for the day and the interest rate has no effect, MG are likely to have mortgages and should have a welcome boost to their disposable income but not until December or January and then not at all if they are on a fixed rate mortgage. OG may be relying on savings and as the interest will significantly decrease so they may well have to tighten their belts.   The more important factor is whether the interest cut will instil a ‘feel good’ factor so that customers are more prepared to ‘splash the plastic’ feeing more confident of reduced outgoings and a lower risk of redundancy. Will it happen?

My feeling is that it is too late to have much impact on Christmas sales and there is likely to be a ‘bloodbath’ on the High Street with Winter Sales starting earlier incorporating savage cuts.  Cash is King, so to survive retailers must keep their overheads and stock levels as low as they possibly can and preserve cash flow. 

Tony Heywood
Retail Troubleshooter
Rescue and Recovery Consultant
Gilcrest Services Ltd

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