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Spanish retail sales slump 10.7%, prompting rethink on austerity Spanish retail sales slump 10.7% as austerity hurts consumers
(35 minutes later)
It was one of the most miserable Christmases on record for retailers in Spain as sales plunged last month in the midst of one of the worst consumer crises the recession-hit country has ever seen.It was one of the most miserable Christmases on record for retailers in Spain as sales plunged last month in the midst of one of the worst consumer crises the recession-hit country has ever seen.
With sales tax hikes biting, unemployment growing and many workers and pensioners seeing the real values of their income fall, Spaniards kept their wallets tightly closed - helping to produce a 10.7% December fall in sales compared with the same month in 2011. With sales tax hikes biting, unemployment growing and many workers and pensioners watching the real values of their income fall, Spaniards kept their wallets tightly closed, helping to produce a 10.7% fall in sales in December compared with the same month in 2011.
The slump in retail spending actually accelerated, rising from a fall of 7.8% for November and an annual rate for 2012 of 6.8%. Retail sales in Spain have now fallen for 30 successive months, and the decline has accelerated since the prime minister, Mariano Rajoy, implemented further austerity measures intended to bring the country's budget into line. The retail slump actually accelerated, rising from a fall of 7.8% for November and an annual rate for 2012 of 6.8%. Retail sales in Spain have now fallen for 30 successive months, and the decline has quickened since the prime minister, Mariano Rajoy, implemented further austerity measures to bring the budget into line.
Major retailers like the supermarket chain Carrefour and Ikea have reported declines in their Spanish stores. Trading data is not available for Inditex - the Spanish retail giant that owns Zara, Massimo Dutti and Stradivarius clothes stores - though it had already reported a slump of 1.3% in sales over the first six months of 2012. Major retailers such as the supermarket chain Carrefour and Ikea have reported falls in their Spanish stores. Trading data is not available for Inditex – the Spanish retail giant that owns Zara, Massimo Dutti and Stradivarius clothes stores – although it had already reported a slump of 1.3% in sales over the first six months of 2012.
Ikea said Spanish sales fell 3.5% in the year to September and Carrefour saw a 4.8% fall over the final three months of 2012. Rajoy's austerity-bound government increased VAT in September in an attempt to fill its coffers. The Christmas sales fall was a further sign that families have fewer euros to spend. Savings are also down, meaning the downturn is not just the result of frightened families trying to build up their savings.
Rajoy's austerity-bound government increased VAT in September in a desperate attempt to fill its coffers. Spain's civil service union, CSI-F, claimed the Christmas sales slump could be blamed directly on decisions to suppress an extra monthly payment normally handed to public staff in December.
The Christmas retail fall was a further sign that Spanish families have fewer euros to spend. Savings are also down, meaning that this downturn is not just the result of frightened families trying to build up their savings. Car and house sales are falling, suggesting the recession that prompted the economy to shrink by 1.4% last year will continue. Most analysts predict the economy will contract by a similar rate this year as the government seeks to cut the budget deficit further just as borrowing costs shoot up. Unemployment rose above 26% last month and is predicted to climb higher but the government insists the recession will bottom out this year and growth will return by 2014.
Car and house sales are falling, suggesting that a recession that saw the country's economy shrink by around 1.4% last year is set to continue. Most analysts see the economy contracting by a similar rate this year as the government seeks to cut the budget deficit further just as borrowing costs shoot up. On Monday night, Olli Rehn, the EU's economic and monetary affairs commissioner, hinted that the austerity programme may have to be relaxed: "If there has been a serious deterioration in the economy, we can propose an extension of a country's adjustment path … That's what we did last year in the case of Spain."
Unemployment rose above 26% last month and is predicted to climb higher during the year - though the government insists that the recession will bottom out during the year and growth will return by 2014.
On Monday night Olli Rehn, the EU's economic and monetary affairs commissioner, hinted that Spain's austerity programme may have to be relaxed. He said: "If there has been a serious deterioration in the economy, we can propose an extension of a country's adjustment path … That's what we did last year in the case of Spain."
Spain is understood to have missed the target of cutting its deficit to 6.3% of GDP in 2012, making it much harder to hit the 2013 goal of 4.5%.Spain is understood to have missed the target of cutting its deficit to 6.3% of GDP in 2012, making it much harder to hit the 2013 goal of 4.5%.
Spain's civil service union, CSI-F, claimed that the Christmas sales slump could be blamed directly on the government's decisions to suppress an extra monthly payment normally handed out to public employees in December.
Clive Black, retail analyst at Shore Capital, said consumers in Spain, like those elsewhere in Europe, had been cutting back on non-food and discretionary spending to focus on essentials.Clive Black, retail analyst at Shore Capital, said consumers in Spain, like those elsewhere in Europe, had been cutting back on non-food and discretionary spending to focus on essentials.
"Large stores have suffered more than small ones because they are in out-of-town locations which require a car. Not going to them reduces temptation and the use of petrol. Small stores, local stores and local supermarkets have gained market share because they are more accessible.""Large stores have suffered more than small ones because they are in out-of-town locations which require a car. Not going to them reduces temptation and the use of petrol. Small stores, local stores and local supermarkets have gained market share because they are more accessible."
Few British retailers are exposed to the Spanish market. Marks & Spencer has just eight stores focused on ex-pat enclaves such as Gran Canaria and Tenerife. Few British retailers are exposed to the Spanish market. Marks & Spencer has eight stores focused on expat enclaves such as Gran Canaria and Tenerife. But one brand with a significant presence in the country is the value retailer Primark, part of the UK-listed Associated British Foods.
One brand with a significant presence in the country is the value retailer Primark, part of the UK-listed Associated British Foods. Primark has defied the woes of the Spanish economy and continued to expand its presence. It now operates 35 outlets in Spain, with six opening since October.
Primark has defied the woes of the Spanish economy and has continued to expand its presence in the country. It now operates 35 outlets in Spain, with six opening in the past four months alone.
"It delivers very strong value credentials to customers," said Black. "Which in any market is a virtue, but especially when the market is facing an economic downturn of the magnitude of the downturn in southern Europe.""It delivers very strong value credentials to customers," said Black. "Which in any market is a virtue, but especially when the market is facing an economic downturn of the magnitude of the downturn in southern Europe."
Spanish media companies, meanwhile, expect advertising spending to fall almost twice as fast as previously thought in 2013. Spanish media companies, meanwhile, expect advertising spending to fall almost twice as fast as thought in 2013. A poll released on Tuesday forecast advertising spending would fall 7% this year. Based on forecasts from sales and marketing directors at Spanish media groups, the survey from consultancy Zenith predicted Spain's battered advertising sector would not pick up until April 2014.
A poll released on Tuesday forecast advertising spending would fall 7% this year, almost double the 3.6% fall expected just two months ago. Based on forecasts from sales and marketing directors at Spanish media groups, the survey from consultancy Zenith predicted Spain's battered advertising sector would not pick up until April 2014.