August 16, 2023, 6:53 p.m
Mr. Farmer
4217
Despite relatively high inflation and very low consumer confidence, consumers continue to spend more than previously thought. Especially for more expensive non-food items. However, these costs are not enough to keep the retail business firmly afloat. Credit insurer Allianz Trade examines the state of the European retail sector and warns of a wave of bankruptcies.
Johan Geroms, Risk Insurance Director for Benelux at Allianz Trade, on household spending: “It’s a paradoxical picture. There’s a lot of savings and obviously less money going to everyday needs like food, electricity and petrol. But at the same time over time we see spending on cars, appliances, furniture, as well as clothing and toys rise.The growth isn’t huge (it’s in the single digits), but inflation and fears of economic downturns can also be expected to have an impact on spending for these kinds of product groups. That didn’t happen.”
According to statistics, retail sales in the Netherlands increased by 4.6% in May. In terms of volume (the amount of goods sold), there was a decrease of 7.5% compared to a year earlier. “This is where you can see the contraction. This is especially true for essential goods. In this regard, the price increase was extreme. Inflation hit the lower incomes particularly hard,” says Geroms.
Notably, Allianz Trade’s European survey shows that in countries such as Germany and France household income growth increased faster than inflation (by 1.7 percentage points in Germany and 2.9 percentage points in France between the end of 2019 and the end of 2022). “This explains why household spending increased. Especially for non-necessity products, this money was spent,” explains Geroms.
“Hard period”
The rise in spending failed to allay concerns in the retail sector. “On the contrary. We are anticipating a very difficult period. It is very fortunate for the sector that household spending is proving resilient. Otherwise the picture would have looked really quite bleak. The retail sector has many other concerns. Look at staff shortages, rising wages, higher energy costs. For many products, these higher costs cannot simply be passed on to higher prices. This can result in lost sales and market share.”
Credit insurer Allianz Trade notes – in line with data from the National Statistics Institute of the Netherlands – that revenue growth can be noted on a broad front. “This is purely due to price increases. If you look at volume, you will see a decline. Many retailers are doing poorly even though they are seeing their turnover increase. Many of them are struggling with large inventories that may have to to come onto the market at dumped prices. They generally get worse,” says Geroms. He also points to other difficulties. “Product supply has been a hot topic since the time of the coronavirus. Many retailers are looking for solutions closer to home. But this also has a direct impact on prices and margins. If your competitor continues to buy cheaply from Asia, you will lose.” .
With costs rising, European retailers are increasingly struggling to keep their heads above water. “For now, growth remains low. It is only in the second half of 2024 that we expect revenues to increase significantly. From a financial point of view, companies are in a difficult position. They do not have the money for the necessary investments. Think about digitalization. You have to be visible online. This is where the consumer’s search starts. Digitization is vital. There are still so many stores in Europe that haven’t tackled it at all.”
Big retailers at risk
Geeroms points to major retailers that have recently struggled, such as fashion brands Scotch & Soda, Score Group and, more recently, bicycle manufacturer VanMoof. “According to our research department, the probability of bankruptcies of large companies (companies with an annual turnover starting from 50 million euros) has increased sharply. Last year, this included 16 concerns with a total turnover of more than 5 billion euros, and it is accelerating. Only in the first quarter of this year, 11 cases worth 2.4 billion euros were lost. Especially these big chains and brands have to invest a lot. Often they already have a lot of debt. Rising interest rates, among all other rising costs, are making more and more -difficult fulfillment of obligations.” According to Allianz Trade, fashion chains, department stores and e-commerce retailers are most at risk.
2023-08-16 15:56:29
#retailers #struggling
