Love means business

Will Hodges explains why Valentine's Day is such a big deal in the retail industry

270 AD. A young bishop going by the name of Valentine awaits beheading in a prison cell charged by the Emperor Claudius with illegally conducting marriages between young citizens. In his final hours, the condemned man sends a love note to his sweetheart, signed "From your Valentine".

Almost 1,750 years later the tradition begun by an Italian saint is still being dutifully honoured by florists and card shops the world over. Indeed, 14 February has become the second largest single retail event of the year after Christmas, with Britons estimated to have spent close to £1 billion in 2013.

The numbers make for impressive reading: the average spend per person in the UK on Valentine's gifts and celebrations is £119, more than twice the amount spent by the average German, who are (perhaps rightly) the most cynical country when it comes to Valentine's Day, according to recent figures. In 2012, we bought 2,648,000 bunches of flowers and 27 per cent more lingerie than usual in the run-up to the big day. And it's not just humans reaping the rewards. In the US, £231 million is spent each year on pets by loved-up owners.

Young hearts spend freely

Putting an especially big smile on the face of UK retailers is the amount spent on gifts by teenagers and young adults. Traditionally the 16-25 age group is the lowest spending demographic in UK, a position which has been exacerbated in recent years by high unemployment and the growing cost of renting, which has seen young people fall further behind the rest of the country in terms of disposable income. As Paul Johnson, director of the Institute for Fiscal Studies, explains, "in terms of employment, income and consumption it is the under-30s who have really borne the brunt of the recession."

Fortunately, a lack of ready cash hasn't stopped students and young people from dusting off their wallets when it comes to displaying their affection for their better halves. Indeed, 16-25s represent the second-highest spenders on Valentine's gifts and cards after the 25-35s, which is perhaps due to the fact that they're more likely to find themselves in the "honeymoon" phase of a relationship.

However, it remains to be seen what impact the recent introduction of the government's Help to Buy home ownership scheme will have on the spending habits of young adults in 2014. With under-30s being encouraged to channel their spending into mortgages and home improvements, there may be less cash to spare for flowers and chocolates than there was at this point last year.

Roses are red... balance sheets too

A reduction in Valentine's day purchases by the 16-25 demographic could threaten to derail a recent trend towards high Valentine's Day spending - during February 2013 overall outlays in the UK were 10 per cent higher than in February 2012. In recent years many retailers have become reliant on seasonal events such as Christmas, Easter and Valentine's Day to boost their bottom lines.

But while targeting seasonal sales growth can be an effective method of boosting overall revenues, retailers who depend on holiday spending are often among the first to suffer in a bear market. Companies operating in the gift and luxury goods markets have found themselves hit especially hard over the past few years as a lack of disposable income has led consumers to cut back on non-essential purchases.

For example, the UK's largest greetings card company, Clinton Cards, who went into administration in 2012 after reporting half-year losses of £3.7 million. The company was forced to close 350 stores, while the remainder of the business was sold to US card maker American Greetings.

The news followed Thornton's announcement that it was to undergo a major restructuring of its luxury chocolate business following falling revenues. Blaming an overdependence on seasonal events, such as Christmas and Easter, the company planned to close a minimum of 120 high street stores across the UK, and revealed its intention to refocus on the birthday and anniversary gift market.

Here's to 14.2.14

However if current retail trends are anything to go by, Valentine's 2014 is shaping up to be a bumper year for florists and chocolatiers alike. The latest data available for December 2013 shows that total annual retail spending increased by 5.3 per cent on a year-on-year basis, the highest increase for more than nine years.

A closer look at the figures indicates that the biggest boost to sales was enjoyed by small shops. This suggests that consumers are starting to spend more on boutique, high-end items, reversing the trend of recent years towards low-cost bulk retailers such as Primark, which bodes well for those hoping for presents later this month.

Splashing out on gifts of chocolate and lingerie is likely far removed from the intentions of St. Valentine in his sacrifice for young love. However, whatever his sentiments, there are chief executives worldwide grateful for the timely boost in profit margins that this romantic occasion provides.