Retailers in Hesse brace for a less jolly Christmas season
The retail sector in Hesse is bracing itself for a rocky festive period. Although retailers can anticipate a modest increase in sales in November and December, as well as for 2023 as a whole, in comparison to the same period the previous year, the expected growth in nominal sales will be counterbalanced by a decline in real terms due to inflation.
The Hesse Retail Association forecasts that sales for the month of November and December will see a 1.5% increase to approximately 10.7 billion euros (compared to 10.5 billion euros in 2022). However, when adjusted for inflation, sales are expected to slip 5.5% compared to the same period in the previous year.
For the entire year, the retail sector in Hesse is projected to reach a total of 56.4 billion euros (rising from 54.7 billion euros in 2022), signifying a 3.0% increase in nominal sales. Nevertheless, Jochen Ruths, President of the Hesse Retail Association, underscores that this growth is not genuine but rather a reflection of increasing prices, and sales are predicted to decrease in real terms by approximately 4%.
Inflationary pressures continue to put a damper on consumer expenses
Consumer purchasing power has been diminished by sky-high inflation for several months. Households are now finding it harder to stretch their budgets. As a result, many are reducing their expenditures. Recently, Germany experienced a substantial decrease in inflation, with a rate of 3.8% in October – a remarkable drop compared to previous months. However, food prices saw an increase during this timeframe, further straining household budgets. Additionally, soaring energy and gasoline costs have added to the financial strain.
Tatjana Steinbrenner, Vice President of the Hesse Retail Association, notes that the economic effects of geopolitical instability and declining consumer confidence are being felt more profoundly within the retail sector. Sales growth is not as robust as expense growth, resulting in financial stress for retailers.
Custom duty challenges might be a further barrier for retailers
Custom duties have the potential to pose additional complications for retailers. In an already challenging retail landscape, the increasing economic pressure and dwindling consumer sentiment are already straining sales. Additional costs associated with customs could further erode retailers' profit margins during the Christmas season.
Given the anticipated decline in real terms for retail trade's sales during the festive period, some retailers may contemplate importing goods from countries with lower production costs or more lenient customs policies to offset their financial losses.
Enrichment Insights:
Inflation’s impact on retail sales has been complex and sector-specific. Retail and food services sales saw a decline of 0.9% in January 2025, following four consecutive months of growth. Although food services sales rose 0.9% in January, fueling consumer spending, energy inflation increased from -2.0% in November to 0.1% in December 2024. Gasoline prices also rose 1.8% in January, potentially causing a decline in gas station volumes despite the price increase.
The potential imposition of tariffs and trade policies could further affect retail sales. Retailers might elect to pass price increases to consumers, absorb additional costs, or even negotiate new deals with suppliers to mitigate tariff expenses. This could potentially result in higher prices for imported goods and constrain consumer spending. Despite these challenges, consumer spending is projected to increase near a 2.5% annualized pace in Q1 2025, indicating potential for recovery.
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