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Swiss retail sector: Credit Suisse revises its sales forecasts

Today, Credit Suisse has published its revised sales forecasts for the Swiss retail sector. Retailing is one of the sectors worst hit by the lockdown caused by the COVID-19 pandemic. Although brick-and-mortar food sales are likely to remain on a par with the previous year, the temporary closure of outlets in the physical non-food area means a drop in sales of around 20%. By contrast, the current lockdown will give a massive boost to online shopping, which is expected to record an increase in sales of around 30% this year.

A degree of hope is in the air for the Swiss retail trade: The easing of the lockdown as of today, Monday, allows florists and home improvement stores, among others, to reopen their doors to customers. Other parts of the retail sector are likely to follow on May 11. These are important steps for the retail trade – one of the sectors hardest hit by the lockdown.

A look at the corporate structure statistics published by the Swiss Federal Statistical Office (SFSO) shows that almost 33,000 Swiss retail outlets had to close temporarily. This means that around 173,000 employees were directly affected by the lockdown, representing more than half of all workers in the retail trade (56%). Despite the widespread use of short-time working, the number of persons registered as unemployed in the retail sector was up almost 15% at the end of March compared with a month earlier. This represents an increase of 1,162 in the total number of unemployed persons (source: Amstat). Credit Suisse economists expect this figure to go on rising. Redundancies are likely to take place primarily in businesses that need to stay closed for longer or that are heavily dependent on international tourism.

Have food retailers benefitted from the COVID-19 crisis?
Judging by the empty shelves, food retailers seem to be benefiting from the COVID-19 crisis. However, the growth in sales is likely to be limited on account of the fact that the increase in shopping is concentrated in fairly low-priced basic foods and hygiene products. For the brick-and-mortar food sector, these additional sales – together with the current absence of competition from cafes, restaurants, and bars – are nevertheless counteracting the shortfalls in the convenience segment and locations that have recently seen very little footfall, as well as the exodus to online channels. All in all, these effects are likely to balance one another out according to the economists at Credit Suisse. Consequently, they expect physical food sales to be roughly equivalent to last year's level. However, this does mean that the trend will be less dynamic than the economists predicted at the start of this year (+0.8%).

Non-food: Bricks-and-mortar shortfall amounts to 20%
Non-food retail sales in physical stores in 2020 are likely to be significantly below last year's level, even assuming the easing of the lockdown goes ahead as planned. Based on data for last year, as well as the optimistic assumption that all non-food retail businesses are allowed to open again from May 11, the economists at Credit Suisse predict that the shortfall in the physical non-food segment is likely to amount to minimum 20% of total annual brick-and-mortar sales. Since the economists anticipate an increased online share in non-food segments for the post-lockdown period as well, these values should nevertheless be seen as the minimum losses. Second-round effects such as the deterioration in consumer sentiment, less dynamic nominal wage growth, and reduced immigration point to an even more negative sales trend of around -20% (forecast at start of 2020: -0.2%).

COVID-19 crisis giving a boost to online shopping...
Online shopping is continuing to receive a considerable boost as a result of the lockdown, heightened risk of contagion in shops, and restrictions on leisure activities. The online share of total retail sales (approximately 9% in 2019, according to GfK) is therefore likely to rise sharply. According to estimates by the Credit Suisse economists, online sales are likely to jump by around 30% this year – an increase of around CHF 3 billion compared with last year. This assumes that online sales in March, April, and May will be on a par with pre-Christmas levels. The extrapolation shows that the online element will amount to nearly 15% by the end of 2020. Taking into account that the online share will almost certainly be higher not only during the lockdown but also in future, it will likely surpass 15%.

...and stimulating demand for home electronics, home improvement, and personal care products
Online providers of home electronics have recently reported much higher order volumes, with sales on a par with typical pre-Christmas levels. Home office is likely to be a contributory factor, as it is boosting individual demand for office equipment and computer accessories. Since the home electronics segment already shows the highest online share (more than one-third), the economists assume that these positive online effects can offset much of the loss in physical sales. Strong demand in the home improvement, garden, and car accessory segments has prompted the Federal Council to prioritize the reopening of brick-and-mortar stores in these areas. Persistently good weather conditions in Switzerland are an additional driver; this will likely shore up sales in this area and help ensure that sales growth is maintained at around the previous year's level. The COVID-19 crisis is also unlikely to curb the positive trend in sales in the health and personal care segment. Pharmacies in particular are benefiting from stronger demand for disinfectants, face masks, and immunity-boosting products.

The publication "Schweizer Detailhandel: Massive Einbussen im stationären Handel" can be found here (only available in German).