Credit Crunch Update: No Green Shoots in EU Retailing Q1/2 2009

Introduction

Most consumers in the EU have reached the peak of private indebtedness, as unemployment rates are rising, consumer confidence is dipping and consumer credit becomes increasingly hard to get hold of. This brief provides an update on this contracting economic activity.

Report Highlights
Highlights

We find ourselves slogging through the bleakest economic landscape most of us have known in our lifetimes. Verdict expects that the recession in the EU will end sometime perhaps as early as 2010. That would make it the longest and probably deepest downturn since the Great Depression.

Eventually, old and broken down goods will need to be replaced, and the resulting demand will drive economic and retail sales growth. That said, we expect the pace of the recovery will be extremely slow. We are not through the worst yet. We believe that yet more retail casualties such as Arcandor are around the corner.

We are also sceptical about capacity shifts. While insolvencies are usually good news for rival surviving retailers as they stand to gain market share, we are now operating under conditions of severe financial stress and consumer confidence at rock bottom levels. This means that capacity might simply disappear altogether as demand collapses.
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TABLE OF CONTENTS
CHAPTER 1 EXECUTIVE SUMMARY 9
Key Findings 9
Main Conclusions 10
CHAPTER 2 ECONOMIC OVERVIEW 13
Main Messages 13
GDP Top 10 15
GDP Top 10 15
GDP Top 10 Forecasts – Bleak Outlook 16
GDP: Midranking Eight 17
GDP Midranking Eight – Growth Erosion 18
GDP: Smaller Nine 19
GDP Smaller Nine – Growth Erosion Bad For Baltics 20
Consumer Expenditure 21
Structure 23
Inflation Falls Rapidly At End-2008 25
HICP Annual Averages 26
Savings Rate To Increase Sharply 29
Euro Interest Rate Turns Downward 31
Other Interest Rates 33
Unemployment – Lagging Indicator 35
CHAPTER 3 EUROPEAN MARKET – RETAIL SPENDING 37
Latest Expenditure Trends 37
CHAPTER 4 MAJOR STORIES 41
Lidl starts selling cars 41
Arcandor goes bust 43
CHAPTER 5 CURRENT TRADING UPDATES 46
March 46
April 47
May 49
Grocery 49
Clothing 51
Other sectors 52
June 54
CHAPTER 6 STRATEGIC SECTION 56
Key Issues 56
As we predicted, Deflation remains the Major Threat 56
Discounters and the Reaction Depress Prices Further 60
Threat of Deflation in Wider Economy 62
CHAPTER 7 THE POLICY RESPONSE 63
The G20 and its impact on the retail sector: Boosting consumer and retailer confidence 63
CHAPTER 8 THE RETAILERS’ RESPONSE 66
Private label development 66
CHAPTER 9 GLOSSARY 70
Definitions 70
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LIST OF TABLES
Table 1: Monthly HICP rates y-o-y Nov 2008 - Apr 2009 25
Table 2: Monthly Unemployment rates y-o-y Oct 2008 - Mar 2009 35
Table 3: Monthly retail growth rates y-o-y Oct 2008 - Mar 2009 37
LIST OF FIGURES
Figure 1: GDP: Top 10 countries in European Union 2008e 15
Figure 2: GDP change % forecast for Top 10 EU countries 2008 & 2009 16
Figure 3: GDP: Midsize Eight (€100bn+) of other 17 countries in EU 2008e 17
Figure 4: GDP change % forecast for Midsize Eight (€100bn+) of other 17 EU countries 2008 & 2009 18
Figure 5: GDP: Smaller Nine (€100bn-) of other 17 countries in EU 2008e 19
Figure 6: GDP change % forecast for Smaller Nine (€100bn-) of other 17 EU countries 2008 & 2009 20
Figure 7: Consumer expenditure of Top 10 EU countries 2007 21
Figure 8: Countries among other 17 in EU with consumer expenditure of €18bn+ 2007 22
Figure 9: Countries among other 17 in EU with consumer expenditure of €18bn- 2007 22
Figure 10: Consumer expenditure as % of GDP 2007 23
Figure 11: Harmonised Index of Consumer Prices – annual average growth of Top 10 EU countries 2007 & 2008 26
Figure 12: Harmonised Index of Consumer Prices – countries among other 17 in EU with annual averages over 4.5% 2007 & 2008 27
Figure 13: Harmonised Index of Consumer Prices – countries among other 17 in EU with annual averages under 4.5% 2007 & 2008 28
Figure 14: Gross household saving % of gross household disposable income (latest data) 2007 29
Figure 15: ECB interest rates 2005-2009 31
Figure 16: Central bank annual averages for key reference interest rates 2008 33
Figure 17: Alsterhaus Hamburg 43
Figure 18: EU HICP – monthly food price change May 2008-Apr 2009 (y-o-y) 56
Figure 19: Oil spot price FOB weighted by estimated export volume ($/ barrel) – monthly Mar 2008 – May 2009 58
Figure 20: Downward spiral of grocery prices in 2009 61
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