The FINANCIAL — Credit Suisse, in partnership with consulting firm Fuhrer & Hotz, on January 9 published the tenth issue of the annual “Retail Outlook” study.
After two years of contraction, the fall in sales in the Swiss retail sector is likely to have come to an end in 2017. For 2018, the Credit Suisse economists nevertheless expect only a small rise in sales. The sector representatives surveyed by Fuhrer & Hotz view the situation as slightly more optimistic overall, with around 60% expecting rising sales. The rapid growth in e-commerce continues to pose a major challenge for bricks-and-mortar retailers. The Credit Suisse economists estimate that German online retailer Zalando has seen a threefold rise in its sales in Switzerland compared with 2012. Despite the Swiss franc’s depreciation, the loss of purchasing power due to shopping tourism is likely to remain considerable in 2017. In this connection, the study also shows that on average consumers are willing to spend around an extra hour traveling when they go shopping abroad compared with when they shop at home.
In the “Retail Outlook” study published on January 9, the Credit Suisse economists analyze the current situation and prospects for the Swiss retail sector. They confirm that after two years of contraction the fall in sales in the Swiss retail sector is likely to have come to an end in 2017. Nominal sales flatlined, according to the Credit Suisse economists. Positive influences on the retail-sector trend included the improvement in the labor market and in consumer sentiment. In addition, the euro strengthened against the Swiss franc due to the economic upturn in many European economies and reduction in political risk. On the one hand, this is likely to have had a dampening effect on shopping tourism. On the other, Europe’s improving economic situation has prompted an increasing number of immigrants to return to their countries of origin. The growth in the number of consumers consequently continued to slow last year.
Clothing Sales Fell Once Again
2017 showed a narrowing of the diverging sales trend seen in recent years in the two key segments of food/near-food and non-food. Retailers of food/near-food products reported a weak nominal rise in sales of 0.3% in 2017, according to the Credit Suisse economists, while the fall in sales in the non-food market came to a virtual halt at –0.1% (2016: –3.1%). However, the differences between individual product groups within the non-food segment remained wide. Thus sales in the clothing segment fell by another 1.5%, according to the Credit Suisse economists – albeit a less severe decrease than in 2016 (–6.9%).
Zalando’s Swiss Sales Now Likely to Top CHF 600 Million
In 2017, the sales growth of domestic and foreign online providers once again far outstripped that of bricks-and-mortar retailers. Zalando is likely to be the largest online retailer in Switzerland after Digitec Galaxus. According to the estimates from Credit Suisse, Zalando has more than tripled its sales in Switzerland since 2012 and had estimated sales of CHF 624 million in 2017. Switzerland accounted for about a quarter of Zalando’s total sales in the DACH countries (Germany, Austria, and Switzerland); this is despite the fact that Switzerland, with its 8.4 million citizens, represents just 8% of the DACH region’s population. This illustrates the Swiss population’s above-average tendency to shop at Zalando.
Retail Sales Likely to Rise Only Slightly in 2018
The number of potential consumers will continue rising in 2018 due to ongoing population growth – although this is once again weaker than in recent years. Economic growth is likely to accelerate to 1.7%, according to the Credit Suisse economists, and therefore have a positive impact on the situation in the labor market and consumer sentiment. But consumer purchasing power is unlikely to rise any further in 2018, given that projected inflation is likely to more or less cancel out higher nominal wages. Price pressure within the sector is likely to decrease slightly in light of the weaker EUR/CHF exchange rate. The Credit Suisse economists expect a slight rise in sales of 0.3% for the retail trade as a whole in 2018. The economic upturn is likely to aid the recovery in demand, particularly in the more cyclical non-food segment. But given that some segments benefited from one-off weather-related factors in 2017, as well as the fact that foreign online retailers are likely to make further inroads into the Swiss market in future, the Credit Suisse economists expect nominal sales in this segment to stagnate in 2018. In the food retailing segment, on the other hand, they expect sales to increase by 0.5%. The retailers surveyed by Fuhrer & Hotz are now more optimistic about prospects for the retail sector as a whole in 2018: A majority (61%) anticipate higher sales numbers, with a mere 15% expecting sales to fall.
Declining Number of Shopping Trips in Non-Food Segment
In this year’s study, the Credit Suisse economists also examine the shopping and mobility behavior of Swiss consumers. Nationwide, Swiss consumers go shopping more than one billion times a year and use the car in half of all cases. The number of shopping trips per capita in the case of non-food products nevertheless fell by 8% between 2010 and 2015, in part owing to the increasing switch to online shopping. In addition, the economists show that shop opening hours – which are decided by the cantons – restrict various groups of the population in different ways. Thus full-time workers are particularly heavily affected by stricter shop opening hours, while the effect on part-time employees and the non-working population is significantly less.
Shopping Tourists Spend an Extra Hour Traveling
According to Credit Suisse estimates, Swiss consumers went on planned shopping trips abroad an average of three times per person per year (latest survey: microcensus on mobility and transport, 2015). As expected, shopping abroad is of above-average importance to consumers living close to the border. In 2015, three quarters of all planned bricks-and-mortar shopping trips abroad were undertaken by residents in the border regions. Consumers with their own car were willing to spend an additional hour or so and drive an additional distance of 55 km for these shopping trips abroad compared with the average planned shopping trip at home. Per car, a foreign shopping trip in 2015 cost an additional CHF 137 on average in terms of time and travel compared with a shopping trip in Switzerland. Given that shopping trips are not usually undertaken alone, the cost difference per individual was estimated at CHF 52. Including the price differences between Switzerland and other countries, a shopping trip abroad in 2015 paid off in the case of a minimum total spend of CHF 274 per car or CHF 105 per person. These figures were nevertheless significantly lower for the above-mentioned three quarters of residents living close to the border, and for the bulk of the population considerably higher. A couple from Lucerne would have to spend around CHF 600 for the journey to Waldshut, Germany, for example, to be financially worthwhile compared with an average shopping trip at home.