Credit Suisse Retail Outlook: Stagnation in the Retail Sector

2016 was a "challenging year" for the Swiss retail sector, according to Credit Suisse. Real demand fell again, which, together with slightly lower prices, led to declining nominal sector sales (-1.0% compared with 2015), also in the second year after the removal of the euro/CHF minimum exchange rate. However, the downward momentum in certain segments had slowed noticeably.

While food retailers were able to report slight nominal sales growth again, retailers in the non-food segment still suffered from a decline in sales, which was significant in some cases, according to the study. The decline in sales weakened only slightly compared with 2015. Within the non-food retail sector, in turn, clothing and footwear retailers in particular were increasingly in difficulties. Their sales shortfall once again increased significantly compared with 2015.

Shopping tourism stabilized at a very high level in 2016, CS surmises, due to VAT receipts at Swiss customs offices. While foreign purchases are expected to have declined slightly locally (-6.2% compared to 2015), cross-border online trade continued to benefit from strong growth momentum. "Overall, one in ten retail francs is likely to have been spent abroad in 2016," states the Retail Outlook 2017.

Lack of growth impulses

CS expects nominal sales in the retail sector as a whole to stagnate in 2017. This would be tantamount to stabilization after the weak previous years. However, there is a lack of clear growth impetus from the economy as a whole for a more dynamic recovery. The authors of the study predict that consumer sentiment will improve only hesitantly at best in 2017 due to the stagnating unemployment rate.

As inflation is likely to return to Switzerland in 2017, consumer purchasing power will hardly increase, despite slight nominal wage increases. Moreover, provided the Swiss franc does not appreciate significantly against the euro again, stationary foreign purchases by the Swiss population are not likely to increase further in 2017, but are likely to decline slightly at most. Real demand will therefore increase slightly, primarily thanks to population growth.

CS expects retail prices to continue to fall in 2017, as in previous years. In view of the subdued industry outlook, sales space expansion plans for 2017 are also more defensive than at any time since 2009. The plans of food retailers are more aggressive than those of non-food retailers.

Supply density highest in centers and agglomerations

This year's study pays particular attention to the regional supply density in the stationary retail trade. This is above average in the Swiss centers and conurbations. In contrast, rural areas - apart from tourist communities - have a below-average supply density. In many regions, the ratio of supply (measured in full-time positions) to demand in the stationary retail trade decreased between 2011 and 2013.

Employment in the retail sector declined in most of the major city centers - with a few exceptions such as Lucerne - while job growth was observed in some of the outer districts. One of the factors responsible for the decline in employment in the city centers was the development of rents for retail space in prime locations.

The regional analysis of supply density also shows the consequences of shopping tourism, which had already risen sharply in 2011. Retailers in border communities of Germany and France recorded 5.4 and 3.4 percent fewer full-time positions in 2013 compared to 2011 - the city of Basel even 6.6 percent fewer. Across Switzerland, the decline was 2.1 percent. The rise in shopping tourism following the appreciation of the Swiss franc in 2010/2011 thus hit retailers in the Basel area disproportionately hard.