The October balance sheet for retail was surprisingly positive. However, expectations for Christmas business are muted given the current difficult economic situation.
German retailers’ sales increased unexpectedly significantly in October. Compared to the previous month, retailers made 1.1 percent more sales (real) after adjusting for price increases, as the Federal Statistical Office announced today. Including price increases (nominal), retailers had 0.7 percent more in their cash register than in September.
Analysts were surprised by the strength of the increase: after the weak sales development in the summer months, revenues were “much stronger than we expected,” according to an assessment by the British analysis house Pantheon Macroeconomics. Year-on-year, sales rose nominally by 2.6 percent in October. In real terms, however, there was a minus of 0.1 percent.
Inflation weighs on traders
Inflation in particular is currently putting a strain on retailers: the effects of higher price levels have recently been particularly evident in the food trade. Sales there fell by 1.6 percent in real terms over the year, but including price increases they rose by four percent. Food prices have risen above average in recent months.
The non-food business such as textiles, books and furniture recorded a real sales increase of 0.6 percent in October compared to the same month last year. Price-adjusted sales in online and mail order sales, on the other hand, were 1.2 percent below the level in October 2022. There was an increase compared to the previous month.
There is now hope that private consumption will become a “small pillar” of the German economy, said chief economist Thomas Gitzel from VP Bank. In his opinion, “there is hope that the German economy will not shrink again in the third quarter, but will simply stagnate.”
Gloomy prospects for Christmas business
Nevertheless, retailers are cautious about the upcoming Christmas business. The industry association HDE expects sales of 120.8 billion euros for November and December, an increase of 1.5 percent. If one excludes increased prices, this is actually a minus of 5.5 percent.
“The industry is feeling the economic impact of the war in Ukraine and the subsequent inflation as well as, more recently, the further decline in purchasing sentiment as a result of the Middle East conflict,” said HDE President Alexander von Preen. The expectations for Christmas business fit into the rather negative picture: slightly more than half of the more than 330 companies in the non-food sector surveyed by the HDE expect worse or significantly worse sales than in the same period last year.
The Christmas business in November and December is the strongest sales phase of the year for many retail companies. The toy trade, for example, achieves almost a quarter of its annual sales during this time.