“Party over” for optimistic retailers

Goods are not expected to fly off the shelves this year Keystone

Rising unemployment, stagnant wages and falling immigration are forecast to negatively impact retail prospects this year, in defiance of rosy industry expectations.

Surprisingly buoyant consumer demand helped prop up the Swiss economy in 2009. But observers believe a period of belt tightening will herald the end of the good times for high street shops.

Economists at Credit Suisse bank, together with consultancy firm Fuhrer & Hotz, have forecast a 0.5 per cent decline in retail revenues this year.

“The party is over for the retail sector,” declared Credit Suisse chief economist Roland Neff at the survey’s presentation in Zurich on Thursday.

The jobless rate is expected to peak at around 5.2 per cent in 2010 while the spending power of those still in work will be reduced thanks to a general wage freeze. But Credit Suisse also paid attention to the shrinking rate of immigration and the consequences of this trend.

Their economists have calculated that foreign migrants stimulated half of the growth in Swiss retail food products between the years 2003-2007. The number of new arrivals is tipped to continue shrinking from a peak in 2008 – and shops will start to feel the pinch this year.

Cup half full

But the 149 surveyed businesses took a different view, with 89 per cent confident that income would increase in the next 12 months. An over-optimistic Swiss retail industry appears to be nothing new as nearly half of the firms admitted they had missed revenue targets last year.

Credit Suisse economist Nicole Brändle explained that shops still had high hopes from Swiss consumers – particularly the larger chains.

“Despite the heavy recession in 2009 the retail trade was relatively strong, and that influences the mood for the coming year,” she told swissinfo.ch. “The survey is also skewed towards bigger firms, and they will probably suffer less than smaller, independent companies.”

That confidence should materialise in expanding marketing budgets and increased shop floor space this year, according to the survey. A third of the respondents said they would increase floor space – by an average of ten per cent.

“Given the degree of market saturation, this will impact adversely on productivity per square metre,” the report’s authors warned in a statement.

EU rules diluted

Retailers should also not expect too much help from the introduction of European Union rules this year. The adoption of the Cassis de Dijon principle – that safeguards the unrestricted trading of goods across European borders – has been watered down with some specific Swiss tinkering to the rules.

The “Swiss finish” is expected to dampen the anticipated reduction of retail prices – a move that will hardly inspire more consumers to rush to the shops, Credit Suisse believes.

In the food sector, discount stores that stock more branded produce are more likely to feel any price impact. But the report authors point to the notorious fussiness of Swiss consumers who are more likely to be swayed by enhanced quality than reduced prices.

The findings of the Credit Suisse-Fuhrer & Hotz survey largely echo a study conducted by St Gallen University’s Institute of Retail Management last year.

The November survey of 2,000 consumers found that 38 per cent of households were planning to reduce their spending in 2010. The reasons given were the expected increases in pension, health and energy costs plus continuing bad news about the global economy.

The report calculated that the Swiss retail industry could lose up to SFr1.1 billion ($1.06 billion) in revenues next year, based on the assumption that every household saved SFr15 per week for the whole year.

Matthew Allen, swissinfo.ch in Zurich

2010 Retail Outlook

Credit Suisse bank and Fuhrer & Hotz consultancy firm surveyed 149 decision makers in the Swiss retail sector.

Looking at the sector’s performance in 2009, 48% of respondents said they had missed their revenue targets. Some 29% admitted that profit targets had not been met.

However, the outlook appears brighter for shops in 2010, with 89% confident that revenues will be up and 74% expecting improved profits.

To help capture this booming market of consumers, a third of companies surveyed said they planned to increase shop floor space – by an average of 10%.

The retail report predicts a 0.5% fall in revenues for the sector this year. The worst hit products are tipped to be furniture, electronic goods, watches and jewellery.

Sales of non-cyclical goods, such as food, are expected to remain stable – although turnover is not forecast to expand even in this area.