The context
After a profitable 2021, the retail sector ended 2022 with falling sales and lower profitability.
In the Eurozone, the market fell by 1.8% in value terms in October 2022 (monthly change, Eurostat), recording the biggest drop since July 2021. Grocery sales were down by 1.5% and non-food by 2.1%. In November, the overall retail market returned to growth of 0.8%, but consumers continued to assess their spending. Non-food grew by 1.6% but food decreased by 0.9%. Readers will remember that European inflation stood at 10% at the end of December 2022.
In the U.S.A., after holding up until October with an increase of 1.3%, the retail market plunged to 0.6% in November and to 1.9% in December (monthly change, Census Bureau). In the US, inflation at the end of 2022 was up to 7.1%, so retailers are facing even sharper declines in volumes. In the U.S.A., margins of the major retailers have plummeted. In Q3 2022, margins fell by 55% year-on-year.
In France, in 2022, grocery retailing fell without collapsing, down by 2.2% in volume and up by 2.1% in value (source IRI). Last year, food inflation was 6.1%. Data shows that the French consumers are unable to move upmarket. There are more first-price products in shopping baskets (sales up by 7.4% in 2022), whilst organic products (down by 7.8%) and fresh products are bought less. Chains with a strong price image have won more customers.
Overall G.D.P. is expected to stagnate in 2023. In the United States, this should grow by only 1%, according to the I.M.F., which also predicts an historical growth of only 1.6% for 2022. French G.D.P. should increase by 0.75% this year, after growing by 2.5% for 2022 and by 6.5% in 2021. In the Eurozone, the European Central Bank forecasts a G.D.P. growth of 0.5% for 2023, and historically by 3.1% in 2022.
Retailers are looking to reduce costs and debt in a tougher financing environment. As interest rates increased (the ECB’s key rate is now 2.5% compared to 0% last July, and the US Fed’s rate is now 4.5% compared to 0.5% in March), investors are no longer satisfied with promises of future and uncertain profits. With the end of cheap cash, a clean-up of the sector is under way.
