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Retail Outlook 2011: Few Supply Shortfalls in Peripheral Regions

Credit Suisse Study on the Outlook for the Swiss Retail Trade

Relative to their residential population, Switzerland's peripheral regions are well supplied with food retailing, according to the annual retail trade study conducted by Credit Suisse and the consulting company Fuhrer & Hotz. The newly launched Retail Provision Index (RPI) gives detailed insights into the regional density of supply in the Swiss retail trade for the first time. According to the index, urban centers and tourist regions are particularly well supplied with retail businesses. Density is below average near the borders because of cross-border shopping. In economic terms, the outlook is promising. The economists at Credit Suisse predict nominal growth in retail sales of around 1.5% in 2011. An exclusive survey of industry decision-makers reveals that over half of respondents have budgeted for sales to increase by more than 2% in 2011.

Despite the strong economic recovery in the last few quarters, 2011 is nonetheless unlikely to bring another consumer boom like the one the country experienced in 2006 and 2007. The economy is expected to slow, which will also impact the retail trade. The sales growth predicted for 2011 will be slightly weaker than in the strong 2010 financial year. The strongest stimulus to demand in 2011 will again come from immigration, which is expected to consolidate at a high level. According to the study, immigration has led to a basic level of growth in the Swiss retail trade in recent years.

Industry Representatives Budgeting Sales Growth for 2011
According to a fall 2010 survey conducted by the consulting company Fuhrer & Hotz of 206 decision-makers in the Swiss retail trade and partner suppliers from Swiss industry, 35% of respondents expect sales to stagnate in 2011 and 56% expect them to grow. The optimism of the retail representatives is also reflected in the fact that 52% plan to expand their sales space – by an average of 11% – in 2011. None of the respondents plans to cut back on space. The companies in the 2009 survey were already upbeat about the 2010 business year, and their optimism was justified. Of those surveyed, 67% achieved or exceeded their budgeted sales in 2010, and as many as 71% achieved or exceeded in terms of profits. Food retailers were the exception here, with quite a few falling short of their sales targets. One reason could be a surprising decline in the prices of many food retailers, which had a negative impact on sales figures.

Retrospective for 2010: Rising Sales, Falling Prices
2010 was a year of high sales for the retail trade. Durable goods were the strongest segment by a clear margin, benefiting from pent-up consumption released at the beginning of 2010 after a weak business year in 2009. With 2% growth, the important segment of food retailing emerged as a major pillar of growth for the industry. Retail prices declined around 1% in 2010. One important factor was the strong Swiss franc, which made imports cheaper. Retailers obviously passed on part of these savings to consumers. In addition, competition became even more severe, particularly in food retailing due to the continued expansion of Aldi and Lidl.

Shops Dying Out in Peripheral Regions – Fastest Growth of Chains in Sporting Goods
Small local shops are indeed dying out. Between 1998 and 2008 on balance, one in ten Swiss shops (and one in four small grocery stores) had to close down. During the same period, employment in the retail trade sector rose by a total of 1.7% as a result of a trend to larger stores. The proliferation of chain stores was a key driver of this development, affecting nearly all segments between 1998 and 2008. Retail chains made the strongest inroads as regards pharmacies, drugstores, bookshops, and furniture stores. In 1998 all these subsectors still employed a large proportion of workers in individual, independent shops. The proliferation of chains is reaching a certain limit in the retail food industry, as 87% of its staff are already working in chains. The study found no convincing evidence for the oft-repeated claim that supermarkets are to blame for the disappearance of small local shops. From a regional perspective, small shops have been closing everywhere across the country, although this was most evident in peripheral regions with fewer tourists, such as the Jura arc, Toggenburg and northern Ticino. On the other hand, between 1998 and 2008 the greatest decline in employment (–4%) occurred in mountain communities with a high tourism intensity. In terms of employment, retail expanded only in conurbations over the decade under observation, with growth of 7%.

Low Supply Density in Many Border Regions
Probably no other European country has a density of retail shops to match that of Switzerland. Economists at Credit Suisse created the Retail Provision Index (RPI) to be able to systematically measure the density of supply in Switzerland. The analysis clearly shows two effects: Because many people cross the border to shop, Swiss border regions have a lower than average retail density with respect to their resident population. This effect particularly occurs in the Jura arc and near the German border, but is pronounced in the Geneva area and Ticino. Of all the Swiss cities, Basel has by far the weakest retail offering. Tourism-dependent communities have an above-average density of retail shops because of the additional demand from tourists. This is also the reason that the Canton of Graubünden, in particular, still has a relatively solid retail offering despite the marked decline of small local shops during the past decade.

Peripheral Regions: Good Supply of Food Retailing, but Non-Food Retail Is Underrepresented
Despite the negative trend over the past years, most mountainous and peripheral regions, even those with a low tourism intensity, still have an above-average supply of food retailing. There is no evidence that peripheral regions in Switzerland have an insufficient availability of staple goods. Non-food retail, which is concentrated in the conurbations, is less densely represented in mountainous and peripheral regions. A good example of this is furniture stores, which are very much underrepresented in Jura, the Engadine and the Alps. Furniture dealers are strongly concentrated in the triangle between Basel, Berne and Zurich, and between Geneva and Lausanne. The only retail sectors in which there are pronounced differences between the language regions are pharmacies and drugstores. Because physicians are not permitted to dispense drugs and insured persons spend more on medication, the density of pharmacies is significantly greater in French- and Italian-speaking Switzerland than in the German-speaking part of the country.