PARIS — It’s shaping up as a not-so-merry Christmas in Europe.
This story first appeared in the December 16, 2014 issue of WWD. Subscribe Today.
With euro zone growth stalling and unemployment stubbornly high, consumer sentiment is shaky as the region heads into the final week of the holiday selling season.
Europeans will cut their average Christmas budget by 3 percent to 488 euros, or $607 at current exchange, Deloitte forecast in its annual Christmas study.
“The euro zone economy is still vulnerable, with weak growing perspectives, a strong tax pressure and staggering unemployment. In such an economic setting, the household confidence is put under great pressure,” the business advisory firm said.
Spending on gifts is set to fall .8 percent, while the amount set aside for food and drink will decrease by 1.9 percent and the budget for leisure by 13.3 percent, it said.
The study cast its net beyond the euro zone to include nonmembers such as the United Kingdom and Switzerland. It questioned 17,326 consumers in 17 countries in Western Europe, Eastern Europe and South Africa during the first and third weeks of October.
Only respondents from Germany, Switzerland, Poland and Russia said they planned to spend more on Christmas this year. French consumers expect to shell out 4.5 percent less, while Italians are trimming their budgets by 8.7 percent, Portuguese by 10.8 percent and Greeks by 12.5 percent.
The euro zone economy is operating under the specter of deflation, with the European Central Bank recently revising down its forecasts for growth to .8 percent in 2014 and 1 percent in 2015, versus earlier forecasts of .9 percent and 1.6 percent, respectively.
Adding to the depressed outlook for retailers, sales of winter ready-to-wear have been slow to take off due to exceptionally mild temperatures across the region. Stores have ramped up promotions accordingly, and this year saw Black Friday deals gaining momentum in the U.K. and making their debut in France.
For the fourth year in a row, consumers are enjoying deeper pre-Christmas discounts than they did last year, Deloitte said in a separate report.
“An unseasonably warm autumn has left many retailers, especially in fashion, trying to clear unsold winter stock as they enter the most important trading period of the year,” it said. “Weekends remain the key days for retailers when it comes to the timing of promotions, with the last weekend before Christmas set to be pivotal both in-store and online, thanks to the growth of click and collect.”
The prospects are not all bleak: Retailers are hoping that a combination of a cold snap in early December and last-minute gift purchasing will help them post low- to midsingle-digit sales increases for the month as a whole.
The U.K., which is not a member of the single-currency zone, could yet prove a bright spot. Seven out of ten British retailers are more upbeat about Christmas trading than they were last year, according to a Barclays bank survey.
Here, the Christmas outlook in key European economies:
Improved business confidence, a continued upward trend in the consumer climate and the long-awaited onset of cold weather bodes well for Christmas business in Germany, but these positive factors may still not be enough to ensure end-of-year gains for many of the country’s fashion retailers.
It’s been a tough fall season, with unseasonably warm temperatures throughout September, October and November pushing retail sales “significantly behind last year,” according to Siegfried Jacobs, deputy director of the German Apparel Retailers Association. Inventories of weather-driven items like heavy outerwear and knitwear are correspondingly high, and markdown activity is already widespread.
While the current frost will undoubtedly spur cold-weather purchases, many will be at reduced prices, further pressuring margins, Jacobs pointed out.
His organization expects total German apparel retail sales to be flat for 2014, but with significant differences: Expansion of sales space will fuel growth for the big players, but for the nation’s owner-operated specialty stores, even a strong December won’t save the day, he remarked.
The GfK German Christmas forecast points to a stable level of holiday business this year, with books, toys and apparel remaining gift-giving favorites. Although cash is also gaining in popularity as a present here, that too will largely land in retailers’ cash registers, GfK experts said.
In total, apparel and accessories gifts are expected to generate 1.86 billion euros, or $2.31 billion, in sales this Christmas season, with cosmetics and perfumes potentially bringing in 867 million euros, or $1.08 billion.
The HDE or German Retailers Association said it was “satisfied” with the first Advent Saturday, which it noted was driven by sales of books and high-end food products.
“The apparel retailers are placing their hopes on the now-sinking temperatures,” HDE director Stefan Genth stated. “Consumers first make a grab for warm winter clothing when it’s sufficiently cold outside.”
A spokesman for Galeria Kaufhof said the department store chain, which operates 122 doors in Germany, is confidently looking forward to its most important season in the year. “If the weather and economic situation play along, we are reasonably optimistic about the Christmas business. The first Advent weekend was a good impulse,” he said.
Consumer confidence is down in Italy, a reflection of the country’s stagnant growth and gloomy economic prospects.
Domestic consumption is expected to increase a measly .3 percent this year, according to the Italian statistics bureau Istat, which forecast that Italy’s gross domestic product will decrease by .3 percent this year over 2013, and show timid growth in 2015.
Against this dispiriting backdrop, many retailers are devising creative in-store displays and banking on smaller items to drive holiday sales.
At department store La Rinascente, “accessories, shoes and cosmetics are selling very well, and we think this will continue,” said chief executive officer Alberto Baldan.
“In Milan, and particularly for gift ideas for younger customers, we’re putting a lot of emphasis on renewing La Rinascente’s annex area,” he added, referring to an area of the store “filled with all the brands best loved by teenagers.” The annex carries a range of makeup, sneakers, lingerie, backpacks, watches and costume jewelry, in addition to apparel, and this month introduced a food area serving focaccia.
Fabio Rossello, president of Italy’s beauty trade association Cosmetica Italia, said that in the cosmetics sector, the gift product of choice is still perfume. He noted that many Italian companies were highlighting holiday gift baskets and makeup kits, which have grown in popularity over the past few years: In 2013, sales of these items were up 4 percent year-on-year, a trend likely to continue.
“It should be noted that, if on one hand [independent] perfumeries remain the top choice for Christmas purchases, there is movement toward [holiday] shopping in monobrand stores, large retail chains and pharmacies,” added Rossello.
Despite a slight improvement in the first half, sales of French women’s rtw are set to fall for the seventh consecutive year, according to François-Marie Grau, managing director of the French Women’s Ready-to-Wear Federation. He now predicts a drop of .5 to 1 percent for the full year. “Unemployment and taxes are rising, which means that the purchasing power of households is shrinking, on the one hand, and consumers aren’t really upbeat, either. People have a tendency to save rather than to spend,” he said, noting that the mild winter further compounded the situation.
At the Printemps flagship on Boulevard Haussmann in Paris, traffic and sales picked up in the first week of December, said Pierre Pelarrey, managing director of the store. Sales were up 8 percent from Dec. 1 to 9, boosted by accessories, children’s wear (up 25 percent), women’s wear (up 17 percent) and men’s wear (up 10 percent).
“Increasingly, people are putting off purchases until the last moment,” said Pelarrey. “Given this year’s calendar, with Dec. 24 falling midweek, I think we can expect a very strong performance on the preceding weekend.”
Printemps drew more than 170,000 visitors on Dec. 6 and in excess of 120,000 on Dec. 7, the first of a series of exceptional Sunday openings permitted by the government in December and January. The store this fall unveiled a revamped accessories department sprawling over more than 100,000 square feet. It also boasts three pop-up gift stores this year, versus one previously, and stages outdoor parades featuring popular comic book characters on Saturdays.
Bestsellers include cold-weather items such as down jackets, cashmere sweaters, lined boots and furs; accessories priced below 100 euros, or $125, and the department store’s new Au Printemps Paris leather goods range.
The neighboring Galeries Lafayette store benefited from a similar dynamic. Sales for the month to date are up 6 percent year-on-year, according to Agnès Vigneron, director of the flagship, and they should end the month with a low- to midsingle-digit increase.
“For Christmas, foot traffic is back to normal, so roughly in line with last year,” she said.
“This is a difficult year, in particular for French consumer spending, so I don’t think we’re going to work wonders. On the other hand, we won’t miss our targets for December the way we missed them for September or October, which were extremely difficult months for us and for retail in general,” Vigneron added.
The consultancy Verdict forecasts the amount spent on Britain’s high street over Christmas will rise by 2.6 percent to 90.7 billion pounds, or $142.2 billion, its biggest increase since 2007. All dollar rates are calculated at average exchange rates for the period concerned.
The New West End Company, which promotes retail businesses around Mayfair, Regent Street and Oxford Circus, predicted sales at stores on or around Bond Street, Oxford Street and Regent Street would rise 5 to 8 percent compared with last year. In a report, it said London’s West End is poised for “its strongest Christmas in years,” citing research from the retail intelligence firm Springboard as well as interviews with major retailers.
Visitor numbers across the West End are set to grow by 5 percent in December, with 40 million shoppers expected to spend about 1 billion pounds, or $1.56 billion at current exchange.
However, the results of Britain’s biggest-ever Black Friday were underwhelming, at least for the midmarket retailers. Sales growth for November remained virtually flat year-on-year, according to BDO’s monthly High Street Sales Tracker. The Black Friday weekend boosted sales for the last week of November by 5.6 percent compared with the same week last year, but like-for-like sales at midmarket retailers for November as a whole were down .2 percent year-on-year.
On the high-end front, Ed Burstell, managing director of Liberty — a store that did not take part in Black Friday promotions — said pre-Christmas sales have been robust so far. He said there was a double-digit uplift in traffic and sales in November — due partly to the airing of the Liberty London documentary, a Channel 4 production in its second season. In December, the increase in sales and traffic has been in the high single digits so far.
Burstell said bestsellers include store exclusives such as Liberty-print Nike trainers, jewelry by Annina Vogel and Liberty’s own collection of small leather goods.
The late surge of cold weather — in what has so far been a wet and mild season — has meant customers are snapping up sweaters and coats.
Things are looking up overall for Spain’s clothing and textile sectors. Domestic apparel sales will increase 2.5 percent this year after a seven-year decline, against a backdrop of economic growth of 1.2 percent, analysis firm DBK Informa said in a recent report.
However, key Spanish retailers say unseasonably warm temperatures are likely to cut into holiday sales.
“The weather has been absolutely fantastic — and terrible for sales of the winter line — but recently, comfortable clothes are flying off the rack. Sportswear has become a profitable trend and this is showing up in current sales,” said Madrid-based ready-to-wear designer Agatha Ruiz de la Prada.
“The Madrid and Barcelona flagships are doing better than last year, but the Paris and Milan stores are falling behind,” she added.
“It’s been too warm,” agreed Linda Heras, international development director of Roberto Verino.
However, she predicted that puffer jackets and quilted down-filled coats in black and claret “will fly” during the holidays, along with smaller pieces to combine with dressier items, like sparkle knitwear, furry handbags and discreet evening clutches with gold threads, and usual gifts like scarves.