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Rain is bad for retailers, but good for cinemas. Sunshine adds a feelgood factor. But this is no year for banking on a boost from the holiday weekend
This has been a fortnight of shorts, sandals and melting ice-creams, but the blue skies boosting Britain’s retailers may be about to cloud over. The weather forecast for Easter is about as unsettled as the economic outlook. It is not what businesses want to hear. For retailers in particular, battered by the biggest squeeze on household budgets for three decades, Easter is a crucial time. If the sun stays out, extra spending on items from picnic food to garden furniture will bring in extra cash on top of the usual chocolate takings. For an economy suffering its slowest recovery in a century, it could be just the fillip needed, say business leaders.
“If we get sustained good weather and Easter then a jubilee, that’s the sort of thing that can collectively start to ramp up economic recovery,” says John Longworth, director general of the British Chambers of Commerce. “You get a feelgood factor, marginal incremental spending and it can change the way people feel about the economy.”
But many economists warn that this year of all years is no time to get overly optimistic about Easter. The first bank holidays of the year to coincide with spring weather traditionally lift shops, restaurants and hotels as well as their suppliers. But the consumer backdrop remains tough, and for all the ringing tills at retailers there are just as many businesses that lose out from the holiday shutdown.
David Tinsley, UK economist at BNP Paribas, also points out that much of the Easter bounce quickly peters out. “There’s quite a strong boost to production from preparing the ground for Easter. Ahead of Easter, manufacturing production is typically 10% higher on the month. What you tend to find is it has an unwind effect in manufacturing following that. In April you tend to see an 8% to 9% fall. The retail sector is a similar story. The month before Easter and the month of Easter it will be boosted … but some of that is at the expense of January and February sales.”
March 2011 was worth 9% of the total year’s retail sales takings, compared with almost 13% for December, according to the Office for National Statistics. This year, January and February each took a much smaller 7%.
Retailers enjoyed an unexpected sales bounce in January, but it proved short-lived, and with consumers remaining under the cosh, retailers know that a buy-one-get-one free Easter egg promotion will not be enough to pull in the shoppers this year.
Department store chain John Lewis has branched out beyond traditional eggs and fluffy bunnies and is hoping to cash in on a new fashion to dress the home for the holiday with its Easter decorative trees; an apple blossom version for Â£75 is flying off the shelves. “We are seeing trends more in line with the American way of celebrating Easter,” says John Lewis buyer Lisa Rutherford. “Decorating the home, involving all the family in egg hunts and more general gift-giving are becoming widespread.”
But other retailers may fare less well in the Easter stakes, warns Chris Williamson, chief economist at data specialists Markit: “The spell of good weather in March will have meant many people will have brought forward their purchases of summer clothes and seasonal lines such as garden furniture. Retailers may therefore have already seen that some of Easter’s typical seasonal boost to sales took place in March.”
Markit points to data from Google showing online searches for shorts, barbecues and outdoor furniture all soared much earlier than usual this year. However, if the rain clouds do gather, one industry will be relieved: cinema. Last Easter, hot weather kept customers away.
“It was a scorching hot Easter weekend last year around the country, coming off a long hard winter and that presented particular challenges to cinemas,” says Mark Batey, chief executive of the Film Distributors’ Association (FDA).
Around seven million people went to the cinema over the Easter 2011 fortnight when the main releases were parrot animation Rio and Johnny Depp-voiced chameleon tale Rango. This Easter, the FDA is hoping to attract 10 million filmgoers.
“We are hoping to do better than last year because there is a much stronger line-up,” says Batey, citing animation The Pirates! with Hugh Grant, the critically acclaimed The Hunger Games and Julia Roberts fantasy film Mirror Mirror. “If the weather cools off a little bit 10 million is certainly do-able.”
The problem for the wider economy is that, regardless of whether sunshine boosts retailers or rain helps cinemas, neither is a particularly big part of Britain’s total output.
The bank holiday losers account for about 3.5 times as much of the economy as the winners, points out the Centre for Economics and Business Research (CEBR). The winners â€“ retail, wholesale, accommodation services and restaurants â€“ make up some 14% of the economy. Meanwhile, the losers â€“ business services, real estate and financial services, manufacturing and construction â€“ account for about 47%.
“Bank holidays are generally bad for the economy,” says CEBR economist Daniel Solomon. “Just over 3% of the 261 potential days that could be worked on are taken as bank holidays by many workers. This puts downward pressure on GDP output.”
Quantifying the cost is difficult, he says. But in “back-of-the-envelope” terms he estimates that if the eight regular bank holidays did not exist, annual GDP would be about 1.3% higher each year than it actually is. The Easter bank holidays can be expected to result in Â£4.6bn of foregone GDP, he adds.
Of course, given that Easter is a regular holiday and is seasonally adjusted out of official economic data, that cost is mainly hypothetical, and will not mean any bigger blow in this year than in any other. But there are plenty of other factors weighing down on Easter 2012. Business confidence is under pressure from high oil prices, fuel tanker threats and the eurozone debt crisis.
On the consumer front, unemployment is rising and for those still in work inflation outstrips wage growth, pushing real incomes lower.
The latest consumer confidence surveys reflect that. After a small pick-up at the start this year, sentiment sank back again in March, according to the latest report by researchers at GfK.
“Consumers are becoming increasingly pessimistic about their personal economic circumstances over the next 12 months, a worrying sign for the already hard-pressed retail sector,” said Nick Moon, GfK’s managing director of social research.
“With last month’s budget unlikely to have a positive impact on consumer spending, shops will be hoping that the bumper summer of the diamond jubilee weekend and the Olympics can bounce people from their present malaise.”
All that does not bode well for holiday spending, says Victoria Cadman, economist at Investec: “In terms of consumers’ ability to get out there and spend, they are still feeling the pinch. The outlook for this Easter is tough.”