Is consumer confidence collapsing?
The current economic climate has undoubtedly had an impact on consumer spending power, with 62% of consumers in the UK stating that they spent less on non-essentials last year due to the rising cost of living [1].
So, consumers are spending less on non-essential items. This kerbing of spending is set to continue through the year ahead as the prevailing economic conditions driving this slowdown in spending persist, albeit with improvements in the economy expected as we progress through the year.
This is a concern for retailers and is, according to our latest survey data, the biggest concern retailers have for the year ahead with 49 % stating that the economic climate is the biggest challenge they face in the year ahead. Specifically, retailers' number one concern was around consumers' ability to afford their next car closely followed by eroding margins.
But is consumer confidence really on the decline?
Consumers defying the gloomy economic outlook
Despite the economic climate we find ourselves in, overall consumer confidence is on the rise with the market research firm GfK recording consumer confidence at -22 in December 2023, compared to -24 in November 2023 and -45 in January 2023. Confidence has risen further still into the new year with confidence in January at -19 [2]. Couple this with household disposable income now being at its highest level in two years [3]and it would seem that consumers are defying the broader gloomy economic outlook.
Focussing on car buyers, our latest consumer survey shows that consumer confidence remains robust with over 45% of consumers confident in being able to afford their next car, up from just over 37% a year ago.
We’re also seeing a rise in traffic to our platform with the number of visits up nearly 7% [4] as of mid-January, whilst the number of daily unique users has risen by nearly 1.5% YoY to circa 1.4 million [5] visits.
So should retailers be confident?
The current signs from the market should give retailers cause to be confident and we are seeing retailers feeling confident about the year ahead, with almost 60% of retailers expecting to perform better this year than last year [6].
At the start of this blog, we highlighted that consumer discretionary spending is falling. But consumers don’t view their next car purchase as discretionary, rather for many consumers it is a necessary purchase and so automotive retail, particularly the used car market, is largely insulated from the prevailing economic headwinds.
This is reflected in the fact that demand for used cars continues to be robust, with demand currently up 6.1% year-on-year, and overall used car transactions remaining strong as well, with the SMMT reporting a 4.6% year-to-date rise in used car transactions and our forecasts predicting a modest rise, 70k, in transactions this year to 7.24 million.
Whilst demand is up, we have seen a lower level of enquiries at the start of the year. However, this conversion rate has been steadily improving through January, possibly due to the easing of the inclement weather we’ve seen in recent weeks, and overall transaction levels in January rose above the same period of last year.
There are then plenty of reasons for retailers to feel confident about the year ahead. But this is no cause for complacency. Now is the time for retailers to double down on the basics, making sure that all their stock is well-presented and available for potential buyers to view online whilst using data in their decision-making in the year ahead and to keep up to date with the current market conditions.
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