Downturn in Italian Retail Sales Continues in July

Steven Bobson, Europe & Americas Editor
July 30, 2012 /

July data pointed to a further reduction in activity in the Italian retail sector, with sales down both on the month and compared with levels one year ago.

The rates of decline in employment, purchasing activity and inventories all accelerated, while profitability continued to deteriorate sharply. Cost pressures, however, eased to the weakest in 20 months amid stronger competition between suppliers.

The downturn in Italy’s retail sector extended to a seventeenth month in July. Furthermore, the rate of
contraction in like-for-like sales accelerated from the previous month and was marked. This was signalled by the seasonally adjusted Italian Retail PMI posting 40.7, down from 41.7 in June.

Anecdotal evidence suggested that low consumer confidence continued to weigh on spending, with footfall reportedly falling over the month.

July’s sales levels were also down sharply on those registered 12 months’ previously. The annual rate of contraction slowed further from May’s survey record, but was still substantial. Respondents linked the reduction in high street spending over the past year to falling purchasing power and growing uncertainty among consumers.

Italian retailers generally fell short of their targets set for July. Anecdotal evidence suggested that the
ongoing economic crisis had softened the impacts that seasonal factors and promotional activities were expected to have had on business inflows. The margin between actual and planned sales was significant, albeit the narrowest in four months.

With regards to the prospects of achieving next month’s planned sales retailers were, on balance, the most pessimistic since data were first collected. Sentiment in the sector has been negative in seven of the past eight months.

The rate of inflation of purchasing costs facing Italian retailers was the weakest since November 2010, in part reflecting greater competition among suppliers. Pushing average prices higher over the month were increases in the costs of transport and a number of raw materials. Combined with lower sales and discounted selling prices, the rise in purchasing costs contributed to another decrease in profitability across the sector. The latest decline was weaker than in each of the previous three months, though still sharp overall.

Employment levels continued to fall during July, extending the ongoing sequence of contraction to 55 months. Moreover, after slowing to the weakest in eight months during the preceding survey period, the rate of job shedding accelerated and was marked overall.

July saw stocks of goods for resale decrease at the fastest rate since January 2010. Many firms that reported lower inventory levels linked this to reductions in purchasing activity, which overall contracted at a sharp and accelerated rate that was one of the fastest in the series history.

Phil Smith, economist at Markit and author of the Italian Retail PMI, said: “Italian high street businesses registered yet another tough month’s trading in July. Like-for-like sales fell at a considerable pace despite widespread offers of discounts, with both factors contributing to a further sharp reduction in gross margins.

“Retailers meanwhile stepped up efforts to reduce stock levels by slashing purchasing activity. In doing so, the level of competition among suppliers to the sector was raised to new heights, driving wholesale price inflation down to a rate that was much weaker than the average recorded over the last year.”

 

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