December 19, 2013 / 11:34 AM / 5 years ago

Retailers' Christmas cheer tempered by fragility of recovery

BERLIN/PARIS (Reuters) - Retailers in Europe are predicting their best Christmas since the financial crisis, though optimism is laced with caution in the face of rising e-commerce and early discounting in a fragile economic recovery.

People walk past the window of an H&M textile shop in this longtime exposure photograph taken in Frankfurt December 4, 2013. REUTERS/Kai Pfaffenbach

Record unemployment and shrinking disposable incomes over the past few years have kept the brake on consumer spending, which generates about two thirds of gross domestic product. But retailers are drawing confidence from signs of improving shopper sentiment as they negotiate the key Christmas period.

The average family budget for Christmas gifts across Europe should rise this year for the first time since 2008, gaining 0.7 percent to about 450 euros ($620), though it remains below pre-crisis levels, a survey by consultants Deloitte showed.

The biggest gain is expected in Germany, with average spend up 6.7 percent in Europe’s biggest economy. Spanish families, despite unemployment still at 26 percent, are forecast to lift festive spending by 1 percent on last year, after a 4 percent decline in 2012, but still-gloomy Greece, Italy and Portugal are expected to remain in negative territory.

German retail industry association HDE forecast a 1.2 percent increase in total Christmas sales, noting a recovery in the second week of December after a fierce storm in the first.

“Customers flocked into city centers and shopping malls looking for gifts. That makes us hopeful for a strong final push,” HDE Managing Director Stefen Genth said.

The HDE expects the increase to be driven by a 15 percent rise in online purchases, echoing Deloitte’s prediction for a 19 percent uplift in Britain’s online Christmas spending.

Market research specialist Verdict forecast fourth-quarter UK retail spending up 2.2 percent from the same period in 2012 to 88.4 billion pounds ($143.6 billion)- the best since 2007, when spending rose 3.1 percent to 82.4 billion.


Optimism in Spain, where consumer confidence last month reached its highest level since late 2011, has prompted retailers to hire 5 percent more staff than last Christmas. That appears to have been justified by crowds that prompted occasional closures at Madrid’s central station on the first weekend of December.

Spain’s Inditex (ITX.MC), the world’s top fashion retailer, sees “positive sales growth” in its home market, where it makes a fifth of turnover, Chairman Pablo Isla said last week.

Inditex rival Hennes & Mauritz (HMb.ST) has also reported accelerating sales, while grocers Carrefour (CARR.PA) of France and Metro MEOG.DE of Germany have both made upbeat Christmas predictions.

Yet the fragility of the recovery has raised the stakes for the many retailers still suffering from a squeeze to disposable incomes from government spending cuts and intensifying competition from online players such as Amazon (AMZN.O).

Even luxury retailers recognize the need to go the extra mile, evidenced by the white-gloved ‘butlers’ on London’s upmarket Sloane Street. Fluent in Russian, Arabic and Mandarin, they have been employed primarily to woo big-spending tourists.

Economic growth in the euro zone slowed to only 0.1 percent in the third quarter, while consumer sentiment worsened unexpectedly in November, ending gains that began in late 2012.

“People haven’t forgotten the past few years of scrimping and saving. Luxuries are for another day,” said Caroline Heaney, a charity worker shopping on Oxford Street in central London.

Tesco (TSCO.L) said it will sell 1.5 million turkeys this Christmas, but Britain’s dominant grocers face an increasingly stern challenge from discount chains Aldi ALDIEI.UL and Lidl LIDUK.UL, where more than half of households now shop.

Electricals retailer Dixons DXNS.L, meanwhile, gave a cautious outlook despite expecting to sell one million tablet computers this Christmas.

“The macro economy is still quiet, particularly for discretionary spend like this,” Chief Executive Seb James said.

The most recent high-profile casualties include British film and computer games rental chain Blockbuster and German home improvement retailer Praktiker PRAG.DE.

“The high street is more polarized than ever, with a widening gulf between the winners and the losers,” said Don Williams, of business advisory and accountancy firm BDO LLP.


Those emerging as winners are the retailers that have done most to offer a seamless shopping experience between websites, stores and mobile devices.

Britain’s top department store group John Lewis JLPCL.UL, which was quick to mesh online and store offerings, said internet sales rose 22 percent in the first week of December.

Back on Britain’s high streets, shopper numbers rose 1.6 percent from November 24 to December 14 against the same period last year, according to research firm Ipsos Retail Performance.

But the optimism over improving footfall and sales volumes is tempered by heavy discounting eroding profit margins.

The Swedish Trade Federation said that a third of retailers reported that holiday discounting, which traditionally begins after Christmas, started earlier than five years ago.

In France, the head of the National Association of Shopping Centres, Jean-Michel Silberstein, said that discounts began to appear as early as the second half of November.

“We are bracing for a difficult December,” he said.

Additional reporting by Sarah Morris and Paul Day in Madrid; Alexander Winning, James Davey and Neil Maidment in London; Niklas Pollard in Stockholm; Editing by David Goodman

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