The Spanish retail sector is starting the year worse than expected after sales were disastrous and suffered from the impact of the Omicron variant at the end of 2021. However, expectations for the month of January are moderate.
Traditionally, the sales start on Friday, after Epiphany. However, it is expected that price increases, which have been contained so far been contained, will continue. Consequently, this means the discounts will be lower.
According to Carlos Moreno Figueroa, of the Spanish Confederation of Retailers (CEC), ‘There will be fewer sales. However, shops that have not done well, especially in the more seasonal sectors, such as fashion, will do everything they can to get rid of the stock they have not sold, with discounts. But the rest will have to adjust to the rise in costs. And, subsequently, pass them on to the product to make up for the continued decline in margin’.
Price increase in January
Moreno Figueroa foresees ‘a general price increase in January. This is because many manufacturers have already passed on the increased cost of raw materials (aluminium, steel, glass, electronics, etc.). And, therefore, the majority of distributors will have to pass on this cost increase’. Selling out is the way for retailers to get rid of unsold stock, but at the same time, it reduces their margins. Consequently, for the shop that sells less and has higher costs, this almost certainly leads to losses.
Disastrous sales year
The sale officially starts after Epiphany. But since 2012, when shops were allowed to choose when to start their offers, many retailers already started slashing prices on Black Friday. This was the other most popular discount period among consumers.
However, last year, the sale coincided with Storm Filomena. Therefore, the textile sector, which was most affected by the pandemic, saw a 53% drop by the end of the sale. ‘Given that extreme drop, it is easy to surpass last year’s sales now. However, that doesn’t mean they will be good sales,’ says Eduardo Zamácola, president of Acotex, the textile sector’s employers’ organisation.
In the autumn, activity in the sector began to pick up and increase. But the impact of the Omicron variant in the latter part of 2021 was great and ‘the last two weeks of December, which we thought would be good, have been catastrophic. Therefore, sales have fallen sharply and now depend on the development of the Omicron variant. The year will not be saved,’ says Zamácola, who points out that ‘people are not buying, but the costs keep rising’. In 2020, the textile sector closed with a 40% drop in turnover compared to 2019. And in 2021 it will fall by 15% compared to last year’s figures. Euromonitor predicts a 5% increase for 2022.
For all sectors combined, the CEC had calculated that 2021 would be 15% below pre-crisis sales. But now it is raising this figure to 25%.
Inflation never so high in 29 years
Zamácola goes on to point out that the fall in the number of people entering shops for fear of being infected has been accompanied by the fact that dinners and events have been cancelled and, with a view to sales, many shops are ‘struggling to pick up the slack because many employees were on sick leave, infected’.
The most discouraging effect, however, will be inflation, which at the end of 2021 was close to 7%, its highest level in 29 years. Therefore, ‘It remains to be seen what economic impact this situation will have on households and spending,’ Moreno-Figueroa said.
He also points to the cost increase for producers of about 15% for household appliances, as all the above increases are added to the new law on guarantees. The new standard will increase the legal guarantee for certain goods from two to three years.
Zamácola concludes: ‘The sector is in a very critical situation because in addition to the drop in income, there is the increase in costs due to the rise in the minimum wage, higher taxes, logistics costs, and raw materials’.
Spain lags behind within Europe
Within the EU, Spain lags behind other countries in terms of retail recovery. While France and Germany are already growing up to 5% above the 2019 level, Spain’s level is still 4% below the 2019 level, according to Euromonitor data.