The retail sector performed better than expected in the first quarter of 2014, ABN AMRO observes. Thanks to the mild winter weather, spending on energy declined, and retail spending on durables like clothing and electronics edged up. The mild weather also helped DIY chains and garden centres, which posted an especially strong jump in sales compared to last year’s cold first quarter.
Retail off to a good start in 2014
Non-food retail in general performed well. Volumes climbed by 0.7 per cent, the first uptick since 2010 (which also featured one quarter of growth), and the largest advance since 2008. Food retail businesses, by contrast, saw their sales volumes drop in the first quarter by 1.3 per cent. The timing of Easter was to blame: 2013’s early Easter boosted sales in the first quarter, while 2014’s late Easter will add to second-quarter sales. This meant that the retail sector as a whole remained marginally in the red with volumes down by 0.1 per cent. According to ABN AMRO, however, this is nevertheless the best quarterly performance since 2011.
One per cent growth in 2014
Based on this strong start to the year, ABN AMRO has upped its full-year forecasts. Nothing has changed to the basic scenario of gradual recovery in the course of the year, but thanks to the upside surprise in the first quarter, full-year figures will be higher. On balance, retail sales volumes are expected to bottom out after five years of decline, rising by 1 per cent in 2014 and 2 per cent in 2015. Non-food retail in particular should show broad-based growth again. Food retail sales volumes are expected to contract by some 0.5 per cent in 2014, followed by 1 per cent growth in 2015.
Volumes at record lows
The positive outlook does not mean, however, that the retail sector has fully recovered from the economic crisis. ABN AMRO observes that after five years of contraction, volumes are at record lows. Structural problems in the sector – such as an oversupply of floor space and a shift to more online-driven, cross-channel consumer approaches – continue to pose a threat to sales and margins in the years ahead. Moreover, consumers, who have suffered considerable capital losses in recent years, will remain cautious. For the time being, therefore, volume growth is likely to remain modest.