Close-Up: Live Issue - Will winter bring us any festive cheer?

Retailers are set to tone down celebrations ahead of a credit-crunch Christmas.

Seasonal convention holds that as soon as the last pumpkin is carved, retailers hit consumers with Christmas.

Shop windows suddenly become lined with tinsel and fake snow, Fairytale of New York will be played constantly in HMV and our television screens will be teeming with glamorous, celebrity-filled Christmas ads for the main high-street retailers.

At least, that's what normally happens. But you might have noticed this year that the economy is in a bit of trouble, and consumers are beginning to cut back on their spending. This could pose real problems for retailers, who rely heavily on the festive period.

"Some retailers do around 60 per cent of their year-round business during the Christmas period, so you can see why the time is so important to them," Richard Dodd, a spokesman for the British Retail Consortium, the trade association for the British retail industry, explains.

"But it is going to be a tough Christmas this year, there's no question about that. Christmas was notably weak last year, and conditions running up to the period this year are even worse."

As consumers begin to spend less, and become more willing to shop around to bag a bargain, the competition between retailers is certainly going to intensify.

"Christmas is always a hugely competitive time for retailers, and this Christmas will probably be more competitive than ever," Richard Perks, the director of retail research at Mintel, the consumer, media and market research specialist, agrees.

"The name of the game always used to be retailers building up their premium ranges. Now, all of a sudden, you're getting brands like Tesco (which recently ruled out the use of any extravagant celeb-fest around the Christmas period) positioning themselves as the country's biggest discounter."

But will it work? You can see why Tesco was eager to reposition itself. By "reflecting the mood of the nation" in its approach to Christmas, consumers may feel more empathy with the brand than if it churned out another glossy ad featuring the overtly expensive Spice Girls.

But Perks warns that while a change of tack may sometimes be worthwhile, retailers must not stray too far from their comfort zone.

"It's imperative that retailers continue to be true to their own markets," he says. "It's still all about understanding your customers and not pretending that you're aiming your products at someone else, just because they're the people who are spending money at the moment."

So the nervy economic climate is certainly going to become a factor for high-street retailers this year, but what about the other supposedly big threat - the internet? People are doing all their Christmas shopping online, we're repeatedly being told, and that will eventually kill off all the high-street shops that we know and love.

This isn't actually the big problem we think it is, though, according to our analysts. "There's a huge myth out there that online is killing the high street, which is just plain wrong," Dodd says.

"The figures are very clear on the proportion of where consumers spend in the retail sector. Six per cent of all retail spending occurs online. It's grown rapidly, but that still means that 94 per cent of consumers still shop on the high street."

Where people shop online must also be noted, Perks says. With Tesco being the country's biggest online retailer, it seems that, barring a few exceptions, such as Amazon and Play, the main high-street retailers are the ones dominating the online market too.

Perks says: "Online is just another service to customers rather than an individual medium in its own right. People will shop online more and more because going out to buy presents is a pain, but, crucially, they'll still be using the same retailers that they do in the high street."

"All retailers are doing is trying to get people to shop with them," Dodd adds. "They don't care as much where the shopping's being done, whether it's in-store or online. They just need to make sure that they are stronger than their competition in terms of offering the best value and by advertising themselves more efficiently."

More efficiently doesn't necessarily mean reducing adspend, but some are certainly doing that. Morgan Stanley says that retail adspend was down in Novemer, although demand may pick up in the run-up to Christmas.

Speaking to the major retailers, Woolworths assures that "as per Christmas 2007, we will have a multimillion-pound Christmas ad campaign", while Sainsbury's also confirms that its marketing this Christmas will be just as prominent as normal. Another of the main players, Boots, says that the festive season is something for which the retailer has been preparing for a long time now, and is convinced that by emphasising value, its taking the most sensible approach.

"We've had a robust Christmas plan in place for a number of months, and this consists of our three for two mix and match offer, where customers choose three gifts and get the cheapest gift free," a spokeswoman for the retailer says. "We're confident with the Christmas plans that we have in place."

So, with a number of the major retailers ditching the celebs and focusing on value, Marks & Spencer becomes an even more interesting proposition this Christmas. Unlike the rest, its glamorous, luxurious approach seems similar to previous years. Take That will be appearing in its Christmas ad, and are rumoured to be joined by a host of other stars, including Myleene Klass and Lulu.

It's an approach that Sarah Gold, the managing partner of CHI & Partners, is wary of.

She says: "Consumers are looking for retail partners who get them and get the situation that they're in at the moment. If they ignore this and try to carry on as normal, then they'll seem out of place and out of touch with society, and that could spell real trouble."

Instead, Gold believes that her agency's Argos ad, which focuses on the benefits of a no-frills, simple service, is the right approach for agencies to take this year.

"When approaching their ads, retailers don't want to look indulgent; instead, they need to let the consumers know that they won't be paying for things that they're not getting, and, by that, I mean all the add-ons and glitz that people just don't care about in times like these," she says.

In the current climate, even the customary influx of shoppers who hit the January sales will be down on the normal number, a spokesman for Verdict Research, says. "Retailers cannot fall back on the promise of high volume sales in January," he says. "In the face of job losses and the arrival of post-Christmas credit-card bills, consumers will hold back from any unnecessary spending, particularly on big-ticket items, precipitating a raft of further retail casualties."

So, with consumer confidence seemingly rattled, retailers will have to ensure they take the right approach in what is such an important period for them. Retailers need to maintain a steady flow of well-targeted Christmas ads, rather than using the uncertain economic climate as an excuse to reduce marketing spend any further.