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Risk of bankruptcy increases – trade trembles before the most important two months of the year

Germany's retailers expect bad Christmas business.

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Risk of bankruptcy increases – trade trembles before the most important two months of the year

Germany's retailers expect bad Christmas business. This is shown by a current survey by the German Retail Association (HDE), in which around 500 companies took part. 72 percent of them expect less business in November and December than in the previous year, especially since consumer sentiment is at an all-time low in the face of inflation, the energy crisis and fears of recession.

The HDE is forecasting a nominal increase in sales of 5.4 percent to a good 120 billion euros for this period. Factoring out price increases, the bottom line is a minus of four percent.

And that's a problem. Because the Christmas business is by far the most important time of the year for many retailers. The suppliers of watches and jewelry, for example, but also the sellers of toys, books and consumer electronics usually generate more than a quarter of their annual turnover during this time.

"We need a reasonable Christmas business, especially in the current situation," says HDE general manager Stefan Genth and refers to the association survey. After all, 75 percent of the retailers surveyed say that they are dependent on good sales in view of the rising energy costs.

In fact, the risk of bankruptcy in the industry increases with increasing reluctance to buy. "In retail, energy costs average two percent of sales," reports expert Genth. The return on the other hand is between two and five percent, depending on the sector.

“If the energy costs multiply like they are now, the margin is gone. And that is not sustainable for the companies in the long run. Especially when the income collapses at the same time as costs rise.” Genth is therefore calling for quick help from politicians.

"The announced relief through a gas and electricity price brake must be implemented promptly." This will help both companies and consumers, who will then be able to consume more again and thus stimulate the economy. "Without help, on the other hand, we have to expect further vacancies in the inner cities."

As a result of the Corona crisis, numerous shops are already unused. And for 2022, the HDE expects another 16,000 businesses to disappear, whether due to bankruptcies or operational closures. The problem is less the 1A locations, as Genth describes.

There are also changes there, but the bars are usually used by other retailers. However, the HDE puts the vacancy rate in prime locations at ten to 15 percent. And in the layers behind it, the numbers are even significantly higher. "The situation in the inner cities is still very fragile," comments Genth.

Current figures from the Federal Statistical Office also show how bad things are for retailers in the shopping streets. According to this, the turnover of the stationary retail trade is still well below the pre-corona level. Bookstores, for example, report a real decrease of 21 percent for the period from January to September compared to the first three quarters of 2019.

In turn, it is 17.5 percent in toy stores, eleven percent in fashion and clothing stores and 7.4 percent in electronics stores. In the course of the year so far, more pedestrians are out and about in city centers than in the pandemic years 2020 and 2021, as data from Hystreet shows.

However, the numbers have not yet reached the pre-Corona year. "On the weekends, the frequencies are quite decent," reports HDE boss Genth. On the normal weekdays from Monday to Thursday, the situation is "not so good".

However, online trade - unlike in Corona times - cannot benefit. In e-commerce, too, business is currently going badly, as figures from the Federal Association of E-Commerce and Mail Order Germany (BEVH) show. After an already weak first half of the year, there was a drop in sales of at least 10.8 percent in the third quarter.

"E-commerce cannot detach itself from consumer sentiment," explains Martin Groß-Albenhausen, the deputy general manager of the BEVH. "Even in product groups that are still showing a slight minus, this is at best the result of the general price increase."

And improvement hardly seems in sight. In any case, the HDE is also forecasting a real minus in the Christmas business for online trade. At 4.5 percent, it is said to be even higher than in brick-and-mortar retail. "The high inflation puts a massive strain on purchasing power," says Managing Director Genth.

There are still consumers who want to spend 300 euros and more on gifts, as a HDE survey of a good 2000 German citizens shows. And at 19 percent, this share is also quite remarkable, even though it is four percentage points lower than in the previous year.

In these statistics, however, the proportion of those who plan to spend less than 50 euros or between 51 and 100 euros for Christmas presents has increased noticeably. At least 40 percent of those surveyed want to keep their spending stable, although this number cannot be assigned to any price range.

According to a YouGov survey, the big sellers under the Christmas tree are, as in previous years, vouchers, toys, books and cosmetics. But clothing, shoes and cash are also among the top places when it comes to gift intentions.

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