Record Decline in Margins As Widespread Discounting in France Fails to Prevent Further Fall in Sales

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

French retailers encountered another tough month in July. Sales fell at a sharper rate on both a monthly and an annual basis, while margins were squeezed to the greatest extent in the survey history.

The pace of job shedding accelerated, while retailers scaled back their purchasing of goods and lowered their inventories.

The headline Retail PMI remained below the 50.0 no-change mark for a fourth successive month in July. At 46.7, down from 48.9 in June, the index signalled an acceleration in the monthly rate of decline in sales.

Anecdotal evidence suggested that trading had suffered in the face of an adverse economic climate, strong competitive pressures and bad weather conditions. Sales were also lower on an annual basis during July. The latest year-on-year drop in sales was steeper than in June, although remained less marked than May’s series-record.

Actual sales at French retailers once again disappointed relatively to previously set plans. The latest shortfall was the greatest for just under twoand-a-half years. Retailers are pessimistic regarding the one-month outlook for sales, with the degree of negative sentiment the most marked since December 2008.

Factors expected by retailers to boost sales over the coming three months include good weather, summer holidays, new product launches and government initiatives. Those factors deemed likely to depress sales in the next three months include a difficult economic climate, high unemployment, increased fuel prices and squeezed consumer purchasing power.

Gross margins in the French retail sector continued to decline in July. Moreover, the latest fall was the
sharpest in the history of the survey. Panellists indicated that margins were squeezed by the need to engage in substantial discounting and promotional activity in the face of an increasingly competitive trading environment.

Wholesale prices faced by French retailers continued to rise in July. The latest increase in supplier tariffs was the sharpest in three months, with a number of panellists commenting that vendors had passed on higher raw material prices.

In line with falling sales, French retailers scaled back their purchasing of goods for resale during July. Although easing from June’s series-record, the rate of contraction remained marked. Correspondingly, inventories declined for a second consecutive month, with a number of survey respondents commenting on efforts to improve cashflow.

Staffing levels in the French retail sector declined further in July, extending the current sequence of
contraction to four months. Furthermore, the pace of job shedding quickened to the sharpest since August 2009. A number of panellists indicated that voluntary leavers had not been replaced.

Jack Kennedy, Senior Economist at Markit and author of the France Retail PMI, said: “French retailers reported a fourth consecutive month of falling sales in July. Tough conditions on the high street meant that even taking a surveyrecord hit to their margins was insufficient to prevent the rate of decline in sales accelerating since June. Other disappointing developments were continued decreases in purchasing and stocks,
while job shedding accelerated to the fastest rate for almost three years.”


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