UK Economic Squeeze: Catering to UK's silver-haired spenders is savvy

In Marks & Spencer Group Plc’s flagship store close to London’s Marble Arch, more mature shoppers browse the Jaeger tops, brightly colored beach coveralls and printed midi-dresses.

An aging customer base for its clothing and home furnishings has long been a source of consternation for the high street bellwether. But right now, it could be the retailer’s biggest asset.

Older Britons may be protected from the latest income squeeze as soaring interest rates ratchet up mortgage costs. That’s good news for companies that have long catered to this underserved population. Other consumer groups should pivot toward these silver spenders.

After blistering energy bills and rocketing food costs, rates that could peak at 6 percent are the latest assault on household incomes. Yet the pain won’t be felt equally.

The discomfort will be most acute for midlife, middle-income households — especially with children at home — who perhaps overstretched to move house, for example, to gain extra space during the pandemic. Add in a higher tax take and the nation’s middle will be increasingly squeezed.

So far, consumers have held up better than expected by adapting to each new challenge. This has included turning the heating down and wearing an extra sweater to combat high household heating bills, and shopping for groceries at Aldi and Lidl.

Signs suggest some are doing the same with rising mortgage costs, such as extending loan terms, shifting to interest-only payments or using savings to cut borrowing.

But if mitigation is impossible, higher monthly repayments for the 1 million borrowers coming off of fixed rates this year are going to hurt.

Unfortunately, many in this cohort will be the big spenders. Already, some are cutting back. Some casual dining operators have seen a slowdown since March. Upmarket chocolate shop Hotel Chocolat Group Plc recently warned on profit, citing weakness in consumer sentiment.

Other areas at risk include home furnishings and DIY projects — unless families unable to move house because of punitive mortgage rates can find the money to improve their homes instead — and new cars.

Travel is the one area that consumers are reluctant to give up, although paring back could happen here too — for example, skipping a second holiday, swapping Majorca for cheaper Morocco or  opting for a staycation.

Younger consumers may be in better shape. They are less likely to be homeowners and may have seen their pay packets swell. Next Plc recently upgraded its full-year profit forecast amid wage increases, coinciding with a rare spell of sunny weather, which encouraged Brits to splurge.

But older shoppers appear the most resilient.

They are more likely to be homeowners and unencumbered by housing debt. According to the UK Office for National Statistics, some 78.1 percent of retired households are owner-occupiers. Those with a mortgage accounted for just 2.7 percent.

Inflationary increases in pension incomes are also benefiting retirees. And rate hikes mean they are finally starting to receive some interest on their savings.

 

The PricewaterhouseCoopers consumer sentiment index, which over the past 10 to 15 years has tended to predict spending around six months later, improved in March from September for most age groups. But the biggest uptick was among the over 65s.

Older customers tend to spend more on experiences, such as eating out and travel. Over 50s’ specialist Saga Plc said recently that it was seeing robust demand for cruises, with bookings this year ahead of the prior one, and the launch of 2024-2025 season the strongest ever.

But with all those restaurant meals, as well as sunny climes to visit, they may need to stock up on new clothing and accessories. According to the UK Office for National Statistics, the over 65s also enjoy spending on their homes, and they splurge more on their gardens than any other age group.

This is good news for M&S, as well as catalog to online retailer N Brown Group Plc, which has traditionally catered to older and larger-sized customers. Dunelm Group Plc, the value home furnishings chain, should be another winner. But across the retail sector, more visits and purchases from older people may help offset cutbacks from families who should be at the peak of their spending power, yet are now more constrained by mortgage costs.

Of course, older people still face higher food and fuel costs, although these pressures should be starting to abate. And not all will own their own homes. Consequently, they may face more expensive rental payments.

Meanwhile, pivoting to older consumers isn’t straightforward. Baby boomers are healthier and have a younger outlook than their parents did. One sure way to alienate them is to treat them as old.

But this risk is worth taking. With many of the nation’s traditional big spenders under pressure, retailers and hospitality groups must look elsewhere for sales. Tailoring products and services to suit older customers — from putting sleeves on dresses to installing more seats in shopping malls — may be essential to navigating the mortgage time bomb.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Views are personal and do not represent the stand of this publication.

Credit: Bloomberg