2017 Retail Outlook: Swiss Retail Sector in Upheaval
The industry faces shopping tourism and digitalization. Sales to stagnate in 2017.
2016 was another challenging year for the Swiss retail industry. Real demand fell; coupled with slightly lower prices, this again led to a decline in nominal sector sales (-1.0 percent vs. 2015) for the second year after the abandonment of the EUR/CHF exchange rate floor. However, the downward momentum slowed markedly in some segments. The situation varied greatly from sector to sector in 2016: Whereas food retailers managed to post another slight rise in nominal sales, their counterparts in the non-food segment continued to suffer from much lower sales in some areas – a rate of decline that was only slightly weaker than that seen in 2015. Within non-food retailing, the situation became increasingly difficult for clothing and footwear retailers, whose sales decreased once again.
Shopping Tourism on Par with 2015
Shopping tourism, which has a heavy impact on the industry, stabilized at a very high level in 2016, judging from VAT receipts at Swiss border posts. Although cross-border, brick-and-mortar shopping seems to have fallen slightly (–6.2 percent compared to 2015), the e-commerce portion continued to enjoy strong growth momentum. All in all, one in every ten Swiss francs in the retail sector is likely to have been spent abroad in 2016.
2017: Impetus Too Weak for Significant Sales Growth
As a whole, nominal sales for the retail sector are expected to flatline in 2017, which amounts to a stabilization after the weakness of the last few years. The absence of a significant growth impetus from the general economy precludes a more dynamic recovery. Given a stagnating unemployment rate, the best-case scenario is a very gradual recovery in consumer sentiment for 2017. Since inflation is likely to make a comeback in Switzerland in 2017, consumer spending power is unlikely to increase much despite a slight uptick in nominal salaries. Provided the Swiss franc does not experience another significant bout of appreciation against the euro, offline shopping abroad by Swiss residents is also unlikely to increase further in 2017 but will, at most, decline only slightly. Real demand will therefore increase slightly in 2017, primarily thanks to population growth. Retail prices are nevertheless likely to decrease again in 2017, following on from previous years. In light of the subdued sector outlook, the retail space expansion plans for 2017 are more defensive than they have been since 2009, though the plans of food retailers are more aggressive those of non-food retailers.
Food / Near-Food Segment to Outperform Non-Food in 2017
Slightly higher demand in real terms will primarily benefit retailers in the food / near-food segment. In addition, they should be more or less able to maintain prices in 2017, compared to the previous year. Prices in the non-food segment, on the other hand, are likely to keep dropping in 2017, too. Nominal sales in food retail are likely to grow slightly, whereas the non-food segment will continue to face declining sales – albeit at a slower rate than in 2016.
Growth in E-Commerce Continues Unabated
Burgeoning e-commerce is one key factor behind the current, challenging situation facing many brick-and-mortar, non-food retailers. Swiss consumers made online purchases worth an estimated CHF 7.5 billion in 2015, i.e. around 5 percent of total retail sales. In the last seven years, e-commerce has seen impressive annual growth of 6.4 percent, and this growth is likely to continue at a dynamic rate in the future. In its latest online retail forecast, Credit Suisse anticipates that e-commerce will nearly double its share of retail sales to more than 10 percent over the next five years. By 2022, e-commerce is likely to account for a considerable share of total sales in the clothing and home electronics segments, in particular (27 percent and 38 percent, respectively).
Cities Show the Highest Supply Density
The special focus of this year's study is the regional supply density in brick-and-mortar retailing. It is above average in Switzerland's main cities and urban areas. By contrast, rural areas other than the main tourist destinations have a below-average supply density. The relationship between supply (measured in FTEs) and demand in brick-and-mortar retailing declined in a large number of regions between 2011 and 2013. Retail employment declined in most major city centers, with a few exceptions, such as Lucerne; this compares with an expansion of jobs in some of the outer districts. The development of rents for retail property at prime locations was one of the main factors behind the decline in employment in the city centers.
Significant Decline in Employment with Retailers in Basel
A regional analysis of the supply density also shows the impact of the sharp rise in shopping tourism back in 2011. Retailers in municipalities bordering Germany and France saw a 5.4 percent and 3.4 percent reduction in full-time equivalents (respectively) in 2013 compared with 2011 – and the city of Basel, as much as 6.6 percent. Across Switzerland as a whole, there was a 2.1 percent decline. The rise in shopping tourism following the Swiss franc's rise in value in 2010/2011 accordingly had a disproportionately heavy impact on retailers in the Basel region, in particular.