Anecdotal evidence provided by survey respondents in December suggested that consumer confidence remained low despite increased marketing efforts by retailers to attract shoppers. Worries about a wider economic slowdown and uncertainty in the financial markets heading into the New Year were highlighted across the three largest Eurozone countries, while retailers in France also pointed to current social unrest (including strikes) as having had a negative impact on sales. Retailers also mentioned specific concerns about inflationary pressures and the subsequent effect on consumer spending patterns - fuel and energy prices were often singled out.
Sales fell in France, Italy and Germany:
- Germany again saw the steepest rate of decline of the three countries. Retail sales fell for the third month running, albeit at a slightly slower rate than in November (the index picked up to 44.0 from November's three-and-a-half year low of 43.6).
- Italy also posted a sharp monthly contraction in retail sales, at a rate that was the second-fastest of the current ten-month period of decline. The index moved lower to 44.7, from 45.3.
- Sales fell in France for the third consecutive month, though the rate of contraction was marginal and weaker than in both October and November. The index posted 49.1, up from 48.8 in the previous month.
Eurozone retail sales were also down in December compared to one year earlier. Moreover, the annual rate of decline in sales was stronger than in the previous two months. The index of yearly sales posted 46.8, below its four-year long-run average of 48.6. Sales were substantially weaker than levels seen twelve months' ago in both Germany and Italy, with the latter posting the slightly steeper decline. In contrast, annual sales registered further strong growth in France.
Sales by sector
Product sector data unadjusted for seasonal factors showed strong annual sales growth in two areas during the festive trading period. Sales rose sharply in food & drink and pharmaceuticals, with retailers in the former sector posting the stronger average gains. However, sales in clothing & footwear, household goods and autos & fuel were all well down on one year earlier.
Sales against targets
Retail sales across the Eurozone disappointed in the crucial month of December. The unadjusted index of actual sales versus planned sales registered 40.7, up from 37.2 in November but still signaling a marked shortfall in sales against original targets. Sales were lower than planned in all three countries, with the most substantial gap seen in Italy for the second month running. By product, retailers in clothing & footwear posted the most disappointing sales in December.
Retailers in the Eurozone were pessimistic regarding January sales. The index of expected sales versus planned sales dipped below the no-change mark of 50.0 for the first time since July 2006, and was at a two-year low of 48.7. Retailers in Germany and Italy expected sales in January to be lower than planned, while in France confidence prevailed. By product sector, retailers of food & drink expect to beat sales targets next month.
Prices and margins
Average purchase prices faced by Eurozone retailers continued to rise at an elevated rate in December. The prices index eased from November's high of 68.5, to 67.1, but this was still the second-highest figure in forty-eight months of data collection and pointed to a rapid rate of cost inflation at retailers. Key items reported as up in price on the month included foodstuffs (particularly grain and dairy products) and fuel, with higher costs passed on by suppliers.
At the country level, inflation of retailers' average purchase prices was notably sharper in Germany and France than in Italy, where it eased sharply since November. Product sector data showed the sharpest rates of inflation at food & drink retailers, followed by household goods and pharmaceuticals respectively.
Reflecting rising cost burdens and lower sales in recent months, retailers' gross margins declined at the fastest rate for almost two years in December. The margins index fell to a twenty-three month low of 41.6. German retailers posted the sharpest decline in profits, and their French counterparts the weakest.
Employment
Retail workforces in the Eurozone shrank on average for the first time in ten months in December (following adjustment for the seasonal boost as a result of temporary recruitment to cope with festive trading). However, at 49.8, the employment index signaled a marginal overall rate of job shedding. Lower staff levels were usually attributed by retailers to the non-replacement of leavers as part of efficiency measures in the face of declining sales. The overall decline in Eurozone retail employment mainly reflected losses in France, as marginal gains were recorded in both Germany and Italy.
Retailers' buying and stock trends
The seasonally adjusted value of purchases made by Eurozone retailers declined marginally in December compared to one month earlier, in line with falling sales. It was the third time in the past six months that retailers have reduced their purchases. The index registered 49.4, down from 51.3 in November. Despite the drop in purchases, firms' stocks of goods for resale continued to grow strongly, as previously ordered goods arrived and sales disappointed. The stocks index registered 55.2, down slightly from 55.8 the previous month but still pointing to the second-sharpest expansion in the past year-and-a-half. Having posted the strongest decline in monthly sales, German retailers saw the fastest expansion in stocks of unsold goods during the month, while solid increases were also registered in France and Italy.
