For the second year in a row, retailers in Germany suffered shrinking sales in 2023. Adjusted for prices, they fell by more than 3 percent. How might business go this year?
According to preliminary figures from the Federal Statistical Office, retail sales fell noticeably last year. In 2023, companies generated 3.1 percent less, adjusted for prices, than in the previous year. In nominal terms, the retail sector recorded a plus. German retailers were only able to increase their sales by a nominal 2.4 percent last year thanks to rising prices.
The statisticians did not yet have the exact figures for December, but they pointed out that a considerable part of the Christmas business had been brought forward to November due to special promotions.
The trend in the beginning of the Christmas business was surprisingly downwards: despite special promotions such as “Black Friday” and “Cyber Monday”, real sales in November fell by an unexpectedly strong 2.5 percent compared to the previous month. “A turnaround in consumption is still out of sight,” said the chief economist at Hauck Aufhäuser Lamp Privatbank, Alexander Krüger.
Weaker internet and mail order business
According to statisticians, real sales of non-food products fell by 3.1 percent in November 2023 compared to the same month last year. In internet and mail order sales it fell by 3.5 percent. In contrast, retail sales of textiles, clothing, shoes and leather goods, which had already had a strong October, also achieved higher price-adjusted sales in November than in the previous year (2.6 percent). And yet: Last year, various fashion chains such as Peek & Cloppenburg, Onygo and Hallhuber filed for bankruptcy due to weak figures.
Grocery stores as well as stores selling home furnishings, household appliances and building supplies recorded particularly strong losses. In the food retail sector, the differences between price-adjusted and nominal sales are particularly clear. In November, companies generated 0.7 percent less in real terms than in the previous year, while non-price-adjusted sales increased by 4.3 percent.
The reasons for the high prices for food include the still high costs of energy, fertilizers and animal feed. The consumer advice center also pointed out that labor shortages and minimum wages increased personnel costs. However, there is always criticism that manufacturers raise their prices unreasonably.
Last year was the second year in a row with real sales losses in retail. The background is the sharp rise in consumer prices, which have led to consumer restraint. In 2020 and also in 2021, there was a significant increase in sales during the Corona crisis, including through online and mail order sales. Real sales in 2023 were therefore 1.6 percent higher than in 2019.
New impulses for consumption?
According to experts, declining inflation could gradually give new impetus to private consumption over the course of the year. According to an initial estimate by the Federal Statistical Office, the inflation rate for the entire year 2023 has fallen to 5.9 percent – after 6.9 percent in the previous year.
“Consumers’ continued reluctance is likely to give retailers a difficult start to 2024,” said ifo expert Patrick Höppner about the situation in the new year. However, falling inflation and rising wages and salaries are likely to strengthen purchasing power and ensure more demand in retail over the course of the year, says Höppner.
“The inflation dynamics in Germany have broken and the time of really high inflation rates is over,” said the scientific director of the Institute for Macroeconomics and Economic Research, Sebastian Dullien. He expects the inflation rate to more than halve in 2024 – to 2.5 percent for the year as a whole.
This would allow real wages to grow more significantly again, which would strengthen consumers’ purchasing power. In the third quarter of 2023 there was already a slight increase in real wages in Germany by 0.6 percent. However, a consumption boom that will pull the German economy out of the doldrums is not in sight for the time being.