Rise in online transactions masks slowdown in consumer spending

Sterling weakness boosts online shopping as customers look to web for better value

A surge in online spending in recent months has masked a significant slowdown in consumer spending, according to report published on Tuesday. The latest consumer index from Visa shows that while spending in December was up 3.6 per cent year on year, the rise was the slowest recorded since it began tracking consumer activity in September 2014.

The data also showed that online spending is now the driving force behind the increase, with ecommerce going up by 15.4 per cent compared with a 0.3 per cent decline in face-to-face expenditure – the third successive month of decline.

The sterling exchange rate was behind much of the online increase as a surge of shoppers took to the web in search of better value from online retailers based in the UK on the back of a weak pound.

While the overall rate of consumer spending has continued to slow, December was a positive month across all sectors except clothing and footwear, where spending was down. Spending on household goods climbed by 4.3 per cent and hotels, restaurants and bars saw the rate of expansion quicken to a three-month high of 5.8 per cent, thanks to a predictable spike in entertainment over the festive period. Similarly, spending on food and drink also posted a return to growth climbing 2.9 per cent year on year.

Spending on clothing and footwear struggled and was the only area where a fall in spending was recorded, a decline for the fifth month running thanks largely to a mild winter which has seen the sale of heavy winter clothes and shoes suffer.

"The large shift to online shopping in the run-up to Christmas continued in December, with consumers seeking to take advantage of the value on offer from UK online retailers due to the sterling exchange rate," said Philip Konopik, Visa's country manager for Ireland.

“Despite this, there are a number of positives to be drawn from the data, with a range of sectors such as hotels, restaurants, bars and grocery retailers clearly benefiting from the festive period. The last quarter has seen the growth in overall consumer spending slip below 5 per cent each month, however, and it will be interesting to observe whether this trend continues into the first quarter of 2017.”

David Fitzsimons, the chief executive of Retail Excellence Ireland, described the data as "concerning" and he pointed to Brexit and the election of Donald Trump as factors which would continue having an impact on consumer sentiment erosion. He highlighted the "migration to UK websites, the rise in discounting activity, a lack of fluidity in the Irish house market and a period of very clement weather in the run-up to Christmas" as other elements to hit the sale of clothes and shoes.

Senior economist with IHS Markit Andrew Harker said that in 2017 Irish consumers would face "a trade-off between a generally improving economic climate and the prospect of further political upheaval, particularly once the UK triggers article 50 to start the formal process for leaving the EU".

Conor Pope

Conor Pope

Conor Pope is Consumer Affairs Correspondent, Pricewatch Editor and cohost of the In the News podcast