Retail Outlook: Golden quarter

07 November 2023

Consumer spending faces a crucial test in the final quarter of the year, known as the Golden Quarter, when retailers make most of their sales. 

Conditions for spending are improving - wages are rising faster than prices, cost of living grants have kicked in, interest rates are unlikely to go up, and inflation is easing. This should make consumers feel better-off and more willing to spend. However, consumer confidence fell sharply in October, mainly due to worries about the economic backdrop. So, what does this mean for demand? 

The outlook for retail sales 

The ONS reported a 0.9% decline in retail sales volumes in September, mainly due to lower sales of clothing and household goods. Clothing sales dropped by 1.9% as consumers delayed buying winter items due to unseasonably warm weather. The largest factor for the drop in sales, however, was household goods down 2.3%. This suggests that consumers who are concerned about costs are waiting for promotional events, such as Black Friday and Cyber Monday, to spend. These events occur before Christmas and offer a chance for consumers who want to save money to do so. Due to the current economic situation, this is something that consumers are eager for.



Looking at the bigger picture, sales volumes in September are at similar levels to 2018, which implies that retailers have not experienced much volume growth in the past five years. This is consistent with the stagnant trend that has been affecting sales volumes for some time. 

Economic data signals a more positive outlook for spending 

However, there are bright spots on the horizon when it comes to economic indications for spending that should give retailers hope. In September the Consumer Price Index (CPI) held steady at 6.7% running below the Bank of England’s forecast of 6.9%. This means that cost pressures that reached their peak in October last year (with inflation running at 11.1%) are gradually beginning to ease. This, coupled with cost-of-living grants coming through, and the fact that wages outpaced prices for the first time since Autumn 2021 in July, means that consumers should begin to feel they have more money in their pockets in the final quarter of the year. 



The gradual fall in CPI also means it’s likely that interest rates have peaked. Particularly when paired with the latest unemployment data that held steady at 4.2% in the three months to August and indicates a cooling labour market. This gives policy makers little reason to hike interest rates any further. Indeed, analysts predict the base rate will hold at 5.25% until the second half of 2024 when it should begin to fall. 

Despite the prolonged high interest rates that may affect the disposable income of working age consumers who will face higher rental and mortgage costs, other economic factors such as real wage growth and falling inflation suggest that indications for spending are not entirely negative. Currently, the economic picture seems to offer a more optimistic outlook for spending than what we have witnessed so far this year. This is good timing considering retailers make most of their profits in the final quarter of the year.

Consumer confidence throws a spanner in the works 

But impetus to spend is not dependant on hard economic data alone. Consumer confidence also plays a vital role, and the latest data from GfK shows a sharp drop in consumer confidence to -30 in October. This is worse than -21 in September when confidence seemed to be recovering, and contrary to analysts who had expected an improvement to -20 for the month. 


The reason for this fall? Colder weather likely raised worries about expenses needed to warm houses and fill petrol tanks, alongside rising mortgage and rental costs also contributing to the decline. Added to this a slowing jobs market and fresh economic uncertainty all resulted in a significant drop in confidence.
So, what might this mean for spending? Given that consumer sentiment remains vulnerable, it is possible that even if consumers see some improvement in their finances, they may opt to save rather than spend their extra money. For retailers this raises the potential of a more muted Golden Quarter than they might have anticipated, with the trend of stagnation persisting.

What can we learn from past Golden Quarters?  

Prospects for the Golden Quarter are always high for retailers, but this year the changing outlook for demand is making it tricky to predict. Set against a mixed backdrop with some positive indications for spending on the one hand, and falling consumer confidence on the other, this myriad of conflicting data is causing the industry a real conundrum when it comes to anticipating spend. 


The data for past Golden Quarter periods can reveal some insights about consumer behaviour and retail trends. According to the 10-year average of retail sales, October is usually a busy month for retail with many consumers starting their Christmas shopping early to spread the cost. However, this year we don’t anticipate this trend to be as pronounced as in 2022 when retail sales were up 1.4% in October compared to the 10-year average of 0.2%. With inventory levels at record highs and inflation stemming demand, retailers went big on discounting early in the quarter, incentivising consumers to bring more of their spend forwards. Seasonal promotions in October bled through into November’s flagship events - Black Friday and Cyber Monday, and even into December, affecting the overall profitability of the sector in 2022.

This year however, the climate is different, and the industry has worked hard to bring inventory levels down. Added to this, increased input costs at the start of the year which have weighed heavily on balance sheets, it’s likely retailers will be eager to pull back lost margins and maximise full price sales in this critical trading window. Consequently, we forecast retailers will limit flagship promotional events like Black Friday and Cyber Monday. This plan, however, will hinge on how well retailers perform in October and November. If they can sell enough in the first two months of the quarter, they might be able to make up for their earlier losses this year. But if sales are weak, retailers will likely resort to heavy discounting in December, especially for seasonal stock like partywear and Christmas food.

To sum up, we think that the first two months of the Golden Quarter will be about the industry working together to maintain margins across the board and take advantage of what is normally the most profitable period for the sector. However, if October and November prove a wash-out due to a continued lag in consumer confidence, all bets are off and December might be a race to the bottom to shift excess inventory.

To discuss this analysis, or any business issue you may be facing in the current climate contact our experts Jacqui Baker or Robyn Duffy. 

Robyn Duffy
Robyn Duffy
Consumer Markets, Senior Analyst
Robyn Duffy
Robyn Duffy
Consumer Markets, Senior Analyst