Sector Report by Bank Austria Economics:
Low-growth retail sector achieves success in consolidation

  • Sales grew by 2 per cent in nominal terms and stagnated in price-adjusted terms in 2012
  • Weak growth prospects for 2013 and 2014
  • Earnings situation has improved
  • Consumers are benefiting from high price pressure in the form of moderate price increases

Austria's retail sector had a weak business year last year. According to the latest Sector Report by Bank Austria's economists, sales growth was well below the long-term growth level in 2012, coming in at 2 per cent in nominal terms. In total, the sector generated EUR 55.1 billion in revenues. "Retail sales stagnated in price-adjusted terms in 2012 and were not able to offset the decline seen in 2011. The decisive factor behind the weak result was the inflation rate, which had a negative impact on real income – and thus on people's desire to spend – for the second year in a row," said Bank Austria economist Günter Wolf, analysing the developments in 2012. Consumer confidence will gain some momentum in 2013 on the back of a moderate rise in real income caused by the lower inflation compared to 2012.

Although the retail sector will once again lose a portion of this additional spending to online competitors, the industry will experience stronger sales growth than in 2012, with a figure of 2 to 3 per cent in nominal terms. It appears that the retail sector will once again benefit from consumers' hesitancy to purchase new automobiles, as was the case in 2012. In price-adjusted terms, sales growth will remain below the 1 per cent mark. Despite the further improvement of economic conditions, growth will not accelerate significantly in the retail sector in 2014 because the moderately rising savings rate will put a damper on consumer spending growth and private households will likely spend more on automobiles again, thus drawing purchasing power away from the retail sector.

The retail sector lacks significant growth prospects

The demand for goods that are relevant to the retail sector is being hindered by several factors, including weak population growth, the very high level of saturation among consumers in many segments and the fact that households are increasingly using or being forced to use their budgets for services because housing and energy are growing more expensive at a much faster rate than electronic goods, clothing and also food. According to Bank Austria economist Günter Wolf, "Goods that are relevant to the retail sector now only account for 34 per cent of consumer purchases by private households in Austria. This figure came to 42 per cent in the mid-80s. And this trend is not likely to be reversed any time soon. Even though higher-quality – and thus more expensive – products are often purchased, affordable prices are still a key motivation in people's shopping habits." Ultimately, the competition and price pressure in the retail sector will increase and will be further intensified by the international competition on the Internet.

Earnings situation has improved

In this environment, the gains made in retail earnings in recent years are impressive and are evidence of the success of the restructuring measures that have been taken and of the industry's exceptional resiliency to crises compared to the overall economy. On average, the net operating surplus for the sector grew by 7.9 per cent per year in the period from 2007 to 2011, while the industrial sector saw a decline of 2.3 per cent during the same period. The earnings situation in the overall economy stagnated during this period.

Price pressure benefiting consumers

Price pressure, which is a decisive factor in the relatively weak earnings situation of many retail segments, is also reducing the strain on consumers' wallets. While consumer prices have risen by an average of 2.2 per cent per year since 2005, prices for goods that are sold in retail have only increased by 1.9 per cent per year. Prices have been driven primarily by housing expenses, energy costs and rent, which have increased by an average of 3.2 per cent per year. When it comes to goods that are relevant for retail, food in particular has become more expensive, increasing by 2.8 per cent per year since 2005, while industrially produced retail goods excluding food and fuels have only increased by 1.3 per cent per year.

However, this means that inflation was above the comparable average values for the Eurozone in the period from 2005 to 2012, which came to 0.8 per cent per year for industrially produced consumer goods and 2.3 per cent per year for food. At the same time, food prices increased somewhat more in the rest of the EU than in Austria. "In Austria, retail prices have risen somewhat more quickly than the average for the other Eurozone countries since the mid-2000s, following a decade of weaker price growth before that. Overall, retail prices in Austria increased by the same amount as the Eurozone average in the period from 1995 to 2012. This also applies to food," said Bank Austria's Günter Wolf in conclusion.

Enquiries: Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0) 50505 - 41954;
E-mail: guenter.wolf@unicreditgroup.at