Retailers ignore clouds by predicting growth

Keystone

The Swiss retail market expects to weather the economic storm by generating increased sales of up to eight per cent this year, according to a survey.

But industry experts believe that bosses of high-street stores are being over-optimistic and will have to revise their expectations as job losses and failing consumer confidence start to bite in.

The retail sector report by Credit Suisse bank and consultancy firm Fuhrer & Holz reflected recent surveys in other sectors of the economy. These show Swiss businesses putting on a brave face and believing they will escape the worst ravages of the global recession.

Some 80 per cent of the 90 retail chiefs surveyed were confident that their company would boast higher sales this year than last. One in ten believed turnover would increase between four and eight per cent in 2009.

But bosses are less confident of experiencing growing profits as competition intensifies with the arrival of foreign chain stores.

Recession buffer

Credit Suisse said it was “modestly optimistic” about the fortunes of the Swiss retail sector this year and predicted growth of one per cent. This would represent a contraction from the boom times, which saw growth rates of up to five per cent in each of the past four years.

Nicole Brändle, a senior economist at the bank, did not expect Switzerland to experience the same retail decline as in Britain or the United States, which have seen established high-street names disappear in recent weeks.

“Our retail market should hold up better because we have seen stronger wage growth and better employment prospects,” she told swissinfo. “Switzerland is somewhat better positioned to face the global downturn.”

Job losses in the sector should be kept to below one per cent in the sector thanks to the arrival this year of German discount chain Lidl, she added.

But Brändle warned that retailers were still being over-optimistic, perhaps buoyed by strong Christmas sales, and warned them to expect a future downturn as the economic downturn catches up with household income.

Sceptics

“We usually see a lag between consumer behaviour and the general economic outlook,” she said. “Even if consumer sentiment is down, this is not immediately reflected in actual purchases. The hard times will come but not as fast as in other countries.”

She added: “Retailers think they can extrapolate the past into the future and they may well have to adjust their outlooks.”

Zurich Cantonal Bank retail analyst Marco Strittmatter was also sceptical about the findings of the survey.

“When you consider that we have seen nothing but bad news about the economy in the past three months, the belief that sales will continue to expand is quite unrealistic,” he told swissinfo.

Saturated market

“If the economic downturn continues, then it has to adversely affect consumer behaviour,” he said.

Strittmatter expects the clothing and food retail industries to be worst hit this year. And he believes that the arrival of German discount supermarket chain Lidl could hurt the established Swiss brands.

Credit Suisse predicts small independent retailers and furniture and home electronics stores to feel the pinch more than others, while discount stores and larger retailers with cash reserves could prosper. The report also warned that the retail market was now saturated with competitors.

swissinfo, Matthew Allen in Zurich

Food fight

The ongoing price war between Switzerland’s leading supermarkets took another turn at the beginning of the year when Coop slashed the price on 600 products.

The two largest Swiss supermarkets, Migros and Coop, have traded blows on price competition since German discounter Aldi opened its first store in Switzerland in 2005.

Competition is expected to heat up this year when a second German discounter, Lidl, sets up shop in Switzerland. Aldi had some 80 stores operating in Switzerland by the end of 2008. By the end of 2010 both chains are expected to operate 220 stores, seizing 5% market share.

The German invasion has shaken up the food retail market, attacking Switzerland’s tradition as a high-quality but high-price island. However, a survey from St Gallen University last year said the price war was damaging the established chains by eroding profits and failing to attract new customers.

Swiss retail market

Swiss retailers generate some SFr85 billion ($77.5 billion) a year and currently employ around 244,000 people in full time jobs (rising to 340,000 including part-time workers).

The sector has recently seen a boom period lasting four years, but the market went through a tough period in the prior decade. One in five companies went bust in this period with the loss of 63,000 full-time jobs.

Consumer sentiment had sunk to a five-year low by the end of 2008 and the spending power of the average Swiss household income has been hit by the rising cost of living in the last decade. Ten years ago, households could count on keeping 75% of their gross income, compared with 70% now.

Credit Suisse estimated that around 30% of disposable household income is spent on consumer goods. But the bank had better news for retailers by predicting that people would cut back on holidays and eating out before economising on shopping.