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Retail Outlook 2021: Consumer behavior varies, doubts remain

Credit Suisse publishes study on the outlook for the Swiss retail sector

Credit Suisse today published its annual “Retail Outlook” study in collaboration with the consulting firm Fuhrer & Hotz. In 2020, which was a turbulent year, the measures taken to contain coronavirus had varying impacts on the different segments of the Swiss retail sector. Changes in mobility behavior impacted on bricks-and-mortar retailers in particular. The authors of the study have found that pedestrian frequencies in Switzerland decreased dramatically during the lockdown – in some cases by up to 80%. Retailers will also have to brace themselves for lower footfall in the future, as a significant proportion of employees are likely to continue working from home. For many segments, the bar is set high when it comes to sales forecasts for 2021. Food retailers in particular are likely to feel this base effect (2021 forecast: -6%). In contrast, the authors of the study anticipate growth in non-food sales of 2%.

In 2020, the Swiss retail sector experienced a seismic shock. The COVID-19 pandemic and the measures to contain it – particularly the lockdown lasting from mid-March to mid-May – had dramatic but also hugely varying consequences for sales and the development of earnings in the different segments of the retail sector. While food retailers were clear beneficiaries, sales volumes in the majority of non-food segments collapsed as a result of the lockdown. Thereafter, a combination of catch-up spending and greater domestic tourism in the summer and fall led to higher sales in the non-food area. Only the clothing and shoes segment was unable to benefit from these effects. Even after the lockdown, the declining sales trend of recent years persisted in 2020.

Pedestrian frequencies fall by 60% to 80%
The short-term restrictions imposed on public life by the government were felt not only by non-food businesses that had to temporarily shut their doors. Depending on their specific situation, food retailers were also noticeably affected. The change in consumer mobility was the main driver. Based on model calculations produced in collaboration with Senozon AG, Credit Suisse economists found that pedestrian frequencies decreased by up to 80% in urban areas and by as much as 60% in rural areas during the lockdown period as a result of greater home office use and the temporary closure of schools and tertiary education institutions.

Pendulum shift toward home working makes rural regions and residential areas more attractive
Based on the assumption that home working will remain a widespread phenomenon going forward, the authors of the study produced a scenario analysis to determine the consequences for the branch networks of Swiss retailers. It shows that footfall is likely to decline by between 5% and 30%, with urban areas being harder hit than rural areas. Within cities, the decline in footfall is likely to be much less pronounced in residential areas than in districts with a particularly high proportion of office buildings, or in districts with a mix of offices and residential areas. Together with rural regions, urban residential areas are therefore likely to be among the least affected.

Focus on service and contactless click-and-collect solutions
As a result of the lockdown and the absence (or reduction) of consumer footfall, bricks-and-mortar retailers have resorted to a number of different measures. Based on a global analysis, the authors of the study show that the primary focus has been on adjustments in service practices. A particular emphasis has been placed on measures to protect the health of clients and employees with the help of new, preferably contactless click-and-collect solutions. Considerable work has also been done to ensure a smooth and contactless payment process. Given the unprecedented situation, retailers have intensified their online activities or omni-channel strategies.

Outlook for 2021: The bar is set high in many segments
Forecasts for 2021 come with considerable uncertainty attached. However, Credit Suisse economists anticipate that Swiss consumer behavior will continue to be overshadowed by the pandemic for several months. At the same time, the year-on-year bar has been set very high in many segments because of strong sales developments in 2020. According to the authors of the study, food retailers in particular are likely to feel this base effect (2021 forecast: -6%). In contrast, the likelihood of the impact of the COVID-19 pandemic persisting for several more months – with consumer behavior set to normalize only gradually – should support the non-food area. Together with a predicted recovery in the clothing and shoes segment, this should result in non-food sales growth of 2% in 2021.

The publication “COVID-19 pandemic and Swiss retail: yesterday, today, tomorrow” is available online in German and French: