French Retailers Signal Sharpest Fall in Sales for 3 Months in August

Michelle Remo, “Big 4″ observer
August 31, 2012 /

The downturn in France’s retail sector intensified during August to the fastest in three months.

Purchase price inflation quickened to the strongest since March, maintaining pressure on retailers’ margins. Employment decreased further, with the rate of job shedding accelerating to the most marked for just over three years.

The headline Retail PMI fell to 44.2 in August from 46.7 in July. That was the lowest reading in three months and indicative of a sharp rate of contraction. Panellists commented on decreased customer footfall, a tough economic climate and lacklustre consumer confidence as factors contributing to the reduction in sales.

Latest data also signalled that sales were down on a year-on-year basis in August. The annual rate of decline was the fastest since May and one of the sharpest in the series history.

French retailers indicated that their actual sales continued to disappoint relative to previously set plans during August. Nevertheless, panellists are optimistic that sales will exceed targets in September, with the degree of optimism regarding the one-month outlook the strongest in nine months.

Factors expected by retailers to boost sales over the coming three months include good weather, the back-to-school period, new collections and government initiatives. Those factors deemed likely to depress sales in the next three months include a weak economic climate, competitive pressures and high unemployment.

Gross margins in the French retail sector continued to decline in August. The latest drop was again substantial, albeit less marked than in July. Alongside strong competitive pressures, a steeper increase in retailers’ purchasing costs was reported to have contributed to the latest fall in margins.

Higher prices for fuel and a range of raw materials were blamed by panellists for driving a further rise
in average purchasing costs during August. The latest increase in supplier tariffs was the strongest
in five months.

Inventories of goods held by French retailers for resale increased for the first time in three months during August. That said, the rate of growth was only modest. Stocks rose primarily as a consequence of decreased sales, as purchasing activity by retailers continued to fall in the latest month.

Employment in the French retail sector continued to fall in August, as companies responded to the current weakness in sales and expectations of continued difficult trading conditions in the coming months. Moreover, the latest drop in staffing levels was the fastest in just over three years.

Jack Kennedy, Senior Economist at Markit and author of the France Retail PMI, said: “The latest Retail PMI data offer little reason for cheer, with the decline in sales accelerating in August and jobs in the sector being cut to the greatest extent in over three years. The weak economic climate was again cited by panellists as having depressed footfall and curtailed spending. Adding further to retailers’ woes was a pick-up in
purchase price inflation, which maintained pressure on gross margins.”

 

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